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Compound growth rate |
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Compound growth rateSee: Compound Annual Growth RateCompound growth rate Similar MatchesCompound annual growth rateCompound annual growth rateThe average rate at which a particular financial parameter compounds up over a period of years. Compounding periodCompounding periodThe length of the time period that elapses before interest compounds (a quarter in the case of quarterly compounding). Compound Annual ReturnCompound Annual ReturnSee: Compound Annual Growth Rate CompoundingCompoundingThe 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 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. Further SuggestionsCompound interestCompound interest Compound option compound interest Continuous compounding Realized compound yield Compounding frequency compound reversionary bonus Discrete compounding Simple compound growth method Compound tariff |
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