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Compound annual growth rate |
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Compound Annual Growth RateBest defined by example. If you invest $100 today and make 5% in the first year and reinvest ($105) and make 8% in the second year, the compound annual growth rate is 6.489%. The calculation is $100x1.05x1.08=$113.4 which is what you end up with at the end of year two. The average return is [square root(113.4/100) -1]= 0.06489 or 6.489%. Note 1. If we had three compounding periods we would take the cubic root (power of 1/3). Note 2. If we had invested at exactly 6.489 in both periods, we get $100x1.06489x1.06489=$113.4. Note 3. The example is directed to a return - but CAGR could be applied to earnings growth, GDP growth, etc.Compound annual growth rateThe average rate at which a particular financial parameter compounds up over a period of years.Similar MatchesCompound optionCompound optionOption on an option. Realized compound yieldRealized compound yieldYield assuming that coupon payments are invested at the going market interest rate at the time of their receipt and held thus until the bond matures. Compound interestCompound interestInterest paid on previously earned interest as well as on the principal. Discrete compoundingDiscrete compoundingCompounding the time value of money for separate time intervals. Compound interestCompound interestThe interest paid on the principal balance in a mortgage and on the accrued and unpaid interest of the loan. Further SuggestionsCompoundingContinuous compounding Compound growth rate compound reversionary bonus Compound tariff Compounding period compound interest Compounding frequency Compound Annual Return Simple compound growth method |
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