Markets: A Rigorous Course
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M06 · Problem 14 ★★ Check

Coffee Can arithmetic

(a) Prove that if annual growth is at least 10% in each of 10 years, the 10-year CAGR is at least 10%, and give a counterexample to the converse. (b) Suppose a company's annual revenue growth is i.i.d. N(14%,6%2)N(14\%, 6\%^2) and ROCE always clears 15%. What is the probability it passes the Coffee Can revenue test over 10 years? What does this say about the filter?

Answers

Commas, ₹, % and 1e-3 notation are accepted.

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