Compound annual growth rate


 

Home
Site Map
Add Term
Search
About Us
Contributors

Compound Annual Growth Rate

Best 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 rate

The average rate at which a particular financial parameter compounds up over a period of years.



Similar Matches

Discrete compounding

Discrete compounding

Compounding the time value of money for separate time intervals.


Compound reversionary bonus

Compound reversionary bonus

A 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 interest

Compound interest

Interest paid on previously earned interest as well as on the principal.


Compounding frequency

Compounding frequency

The number of compounding periods in a year. For example, quarterly compounding has a compounding frequency of 4.


Compound option

Compound option

Option on an option.


Further Suggestions

Compound Annual Return
Compound growth rate
Compound tariff
Compound interest
Realized compound yield
Compounding period
Simple compound growth method
Compounding
compound interest
Continuous compounding


 
All rights Reserved. Do not copy without permission. T4 Innovations Ltd