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# 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.

# Compound tariff

Compound tariff

A tariff that combines both a specific and an ad valorem component.

# 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.

# Realized compound yield

Realized compound yield

Yield 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.

# Compounding frequency

Compounding frequency

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

# Compound interest

Compound interest

The interest paid on the principal balance in a mortgage and on the accrued and unpaid interest of the loan.

# Further Suggestions

Discrete compounding
Compound Annual Return
Compound option
Compound interest
Continuous compounding
Compound growth rate
compound interest
Simple compound growth method
Compounding
Compounding period