What two functions can be used to calculate the compound annual growth rate

Question

BlackTom AI · Accepted Answer

First, let's restate the scenario: the question asks which two functions can be used to calculate the compound annual growth rate (CAGR).
Option by option analysis:
Option 1: 'PV and NPV' — PV (present value) and NPV (net present value) are used in discounting cash flows and evaluating investment profitability, but they do not directly compute CAGR. Thus this pair does not fit the CAGR calculation method.
Option 2: 'PV and FV' — PV and FV (future value) are related concepts in time value of money, yet CAGR specifically describes the rate at which value grows over time, usually requiring a formula that connects initial and final amounts over a number of periods. On their own, PV and FV do not constitute the standard duo for CAGR calculation.
Option 3: 'Rate and NPER' — RATE is the Excel function that solves for the interest rate per period given nper, pmt, pv, fv, etc., and NPER gives the number of periods. While these two functions involve the same financial concepts, they are not typically described as the two functions used together to compute CAGR directly; CAGR is often expressed via RATE or via a simple power formula, and NPER relates to the number of periods rather than the growth rate per period itself. This pairing is plausible in some workflows, but it is not the canonical two-function pair for CAGR.
Option 4: 'Rate and RRI' — RATE can be used to compute the periodic growth rate given cash flow parameters, and RRI (Rate of Return on Investment) yields the annual rate of return over a period given beginning and ending values and the number of periods. This combination directly corresponds to the common approach for determining CAGR: using RATE or using RRI to capture the annual growth rate over the investment horizon.
In terms of identifying the best-matching pair for calculating CAGR, the fourth option aligns with standard finance tools that reveal the annual growth rate between start and end values across years.
Overall, the reasoning here hinges on understanding that CAGR is about the growth rate per year over a time horizon, and RATE or RRI are the functions that deliver that rate given appropriate inputs, whereas the other pairs involve related but not directly synonymous concepts or are not the standard two-function combination for computing CAGR.

fin_221_120251_242735 Extra Credit Quiz 2

What two functions can be used to calculate the compound annual growth rate

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