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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 MatchesSimple 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 interestCompound interestThe interest paid on the principal balance in a mortgage and on the accrued and unpaid interest of the loan. Compounding periodCompounding periodThe length of the time period that elapses before interest compounds (a quarter in the case of quarterly compounding). Compound growth rateCompound growth rateSee: Compound Annual Growth Rate 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. Further SuggestionsCompound tariffCompound Annual Return compound interest Compound option Discrete compounding Continuous compounding Compound interest Compounding compound reversionary bonus Compounding frequency |
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