USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

-Refer to Exhibit 4.4. Calculate the average annual rate of change for this index for the five-year period using the arithmetic mean.
A) 0.28%
B) 1.28%
C) 2.80%
D) 3.58%
E) 6.38%

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
 
-Refer to Exhibit 4.4. Calculate the average annual rate of change for this index for the five-year period using the arithmetic mean.
A) 0.28% 
B) 1.28% 
C) 2.80% 
D) 3.58% 
E) 6.38%

Quizplus · Accepted Answer

To calculate the average annual rate of change for the five-year period using the arithmetic mean, we need to use the formula: 
Average annual rate of change = (Ending Value/Beginning Value)^(1/Number of Years) - 1
Using the given values in Exhibit 4.4, we get: 
Average annual rate of change = (8,221.95/6,969.25)^(1/5) - 1 = 0.0280 or 2.80%
Therefore, the best choice is C.