Compound annual growth rate

 

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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.



Similar Matches

Compound growth rate

Compound growth rate

See: Compound Annual Growth Rate


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.


Compound interest

Compound interest

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


Compounding frequency

Compounding frequency

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


Discrete compounding

Discrete compounding

Compounding the time value of money for separate time intervals.


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Compound Annual Return
Simple compound growth method
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