Compound growth rate

 

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Compound growth rate

See: Compound Annual Growth Rate



Compound growth rate

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Compound annual growth rate

Compound annual growth rate

The average rate at which a particular financial parameter compounds up over a period of years.


Discrete compounding

Discrete compounding

Compounding the time value of money for separate time intervals.


Compound Annual Growth Rate

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.


Compounding

Compounding

The 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.


Compounding period

Compounding period

The length of the time period that elapses before interest compounds (a quarter in the case of quarterly compounding).


Further Suggestions

Compound interest
Compound Annual Return
Compound interest
Continuous compounding
compound interest
Compound option
Realized compound yield
compound reversionary bonus
Compound tariff
Simple compound growth method
Compounding frequency


 
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