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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 MatchesCompoundingCompoundingThe process of accumulating the time value of money forward in time. For example, interest earned in one period earns additional interest during each subsequent time period. 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. 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 Annual ReturnCompound Annual ReturnSee: Compound Annual Growth Rate Discrete compoundingDiscrete compoundingCompounding the time value of money for separate time intervals. Further SuggestionsCompound optionCompounding frequency Compound tariff Compounding period Realized compound yield Continuous compounding compound interest Compound interest Compound interest Compound growth rate |
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