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Compound Annual Return |
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Compound Annual ReturnSee: Compound Annual Growth RateCompound Annual Return Similar MatchesCompound Annual Growth RateCompound 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. Discrete compoundingDiscrete compoundingCompounding the time value of money for separate time intervals. Compound annual growth rateCompound annual growth rateThe average rate at which a particular financial parameter compounds up over a period of years. Continuous compoundingContinuous compoundingThe process of accumulating the time value of money forward in time on a continuous, or instantaneous, basis. Interest is earned constantly, and at each instant, the interest that accrues immediately begins earning interest on itself. Compound interestCompound interestThe interest paid on the principal balance in a mortgage and on the accrued and unpaid interest of the loan. Further SuggestionsRealized compound yieldSimple compound growth method Compounding frequency Compound interest Compound growth rate Compounding Compound tariff compound interest compound reversionary bonus Compound option Compounding period |
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