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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 MatchesCompound tariffCompound tariffA tariff that combines both a specific and an ad valorem component. 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. 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. Compounding frequencyCompounding frequencyThe number of compounding periods in a year. For example, quarterly compounding has a compounding frequency of 4. Compound interestCompound interestThe interest paid on the principal balance in a mortgage and on the accrued and unpaid interest of the loan. Further SuggestionsDiscrete compoundingCompound Annual Return Compound option Compound interest Continuous compounding Compound growth rate compound interest Simple compound growth method Compounding Compounding period |
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