[Math] Find compound growth rate from cumulative totals

financepercentages

I'm a bit out of my depth here, so please feel free to correct any errors in terminology, etc.

I'm looking to solve for a percentage growth rate. I know the starting population, the number of compounding periods, and the cumulative total of the population.

When I say cumulative, I mean the sum total of each compounding period. An example:

  • Starting population: 100
  • Compounding periods: 3
  • Cumulative total: 331

In this case, the growth rate turns out to be 10%, because:

  • Period 1: 100
  • Period 2: 110
  • Period 3: 121
  • Cumulative Total: 100 + 110 + 121 = 331

What I'm looking for is an equation that describes this relationship, like:

Percent growth = ...

Any ideas?

Best Answer

The cummulative total is $S_n=100+110+121$. It can be transformed by factoring out 1.1 and $1.1^2$.

$S_n=100+1.1\cdot 100+1.1^2\cdot 100$ This is the partial sum of a geometric series.

The formula for the partial sum of a geometric series is $S_n=C_0\cdot \frac{(1+g)^n-1}{g}$

$C_0$ is the starting population. $g$ is the growth rate. In your example $C_0=100,n=3$ and $S_n=100$

The formula can be transformed. $S_n\cdot g=C_0\cdot (1+g)^n-C_0$ This equation has to be solved for g.

If n=2, then you have a quadratic equation. It easy to solve.

In your case it is n=3: Here you can apply Cardano´s method or use an approximation method like the Newton–Raphson method. Both methods are time-consuming.

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