The price of a commodity increased by 5% from 2014 to 2015, 8% irom 2015 to 2016 and 77% from 2016 to 2017. The average increase from 2015 to 2017 is quoted as 26% and not 30%. Explain and verify the result.

The price of a commodity increased by 5% from 2014 to 2015, 8% irom 2015 to 2016 and 77% from 2016 to 2017. The average increase from 2015 to 2017 is quoted as 26% and not 30%. Explain and verify the result.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

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The price of a commodity increased by 5% from 2014 to 2015, 8%
from 2015 to 2016 and 77% from 2016 to 2017. The average increase from 2015 to
2017 is quoted as 26% and not 30%. Explain and verify the result.

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