A small business's revenue grew by 12% in Year 1 and by a further 75% in Year 2.
(a)Work out the overall growth multiplier for the two years combined (that is, final revenue divided by starting revenue).(2)
(b)Work out the arithmetic mean of the two percentage growth rates, 12% and 75%.(1)
(c)Use your answer to part (a) to work out the geometric mean annual growth rate: the single constant percentage growth rate per year that would give the same overall growth over the two years.(2)
(d)Explain why the geometric mean growth rate in part (c), not the arithmetic mean in part (b), gives the correct average annual growth rate.(1)
(Total for Question 7 is 6 marks)