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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 MatchesRealized 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. Simple compound growth methodSimple compound growth methodCalculating a growth rate by relating terminal value to initial value and assuming a constant percentage annual rate of growth between the two values. Compound reversionary bonusCompound reversionary bonusA with profits life assurance bonus, normally added annually to the policy, which is based on the profits of the life company's investments.The compound reversionary bonus is normally calculated on the sum assured (or basic sum assured) plus bonuses to date and is payable at the maturity of the policy or prior death. Once declared, reversionary bonuses are guaranteed. Compound growth rateCompound growth rateSee: Compound Annual Growth Rate Continuous compoundingContinuous compoundingThe process of accumulating the time value of money forward in time on a continuous, or instantaneous, basis. Interest is earned constantly, and at each instant, the interest that accrues immediately begins earning interest on itself. Further SuggestionsCompounding periodCompound Annual Return Discrete compounding Compounding Compound option Compound interest compound interest Compound tariff Compounding frequency Compound interest |
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