Determine whether or not this statement makes sense and explain: "Gas prices jumped by 1% in January and 1% in February, so the increase in gas prices over the two months was 2%."
Determine whether or not this statement makes sense and explain: "Gas prices jumped by 1% in January and 1% in February, so the increase in gas prices over the two months was 2%."
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter4: Profitability Analysis
Section: Chapter Questions
Problem 1ACIC
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Determine whether or not this statement makes sense and explain: "Gas prices jumped by 1% in January and 1% in February, so the increase in gas prices over the two months was 2%."
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Introduction
Compounding refers to the process of reinvesting the earnings generated by an investment, such as interest or dividends, back into the investment to generate further earnings. This results in exponential growth over time, as the earnings generated by the investment generate additional earnings.
This is applicable on gas prices also, the increase gets compounded and hence, the price at the end of the priod is the compounded value.
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