#CAGR

— A number used by analysts to summarize the time course of financial gains or losses.  The time course is charted as an exponential growth or decline for the purpose of smoothing out real fluctuations in data. DOWNLOAD the CAGR calculator for a quick and easy calculation. —

CAGR, which stands for Compound Annual Growth Rate, is a good measure of an investment’s rate of return.  CAGR is also used to measure the annualized growth rate of other variables such sales, earnings, total assets, etc.

CAGR describes the average annualized rate of return.  Here are 2 investments with the same CAGR and therefore, the same annualized rates of return:

  • $10,000 was invested on January 1.  Exactly 3 YEARS later, the market value was $80,000.  The CAGR was 100%.
  • $10,000 was invested on June 30.  In 3 MONTHS, the market value was $11,909.  The CAGR was 100%.

INSTRUCTIONS FOR USING THE DOWNLOADED CALCULATOR:

Make appropriate entries and read the CAGR on the worksheet labeled “Entry”.   The initial value is the amount of principal that was invested on the initial date.  The  final value is the market value of the investment at a later date, labeled as the final date.  The dates are entered as mm/dd/yyyy.

SAMPLE PROBLEM:

initial value     $18,880.00

final value       $21,140.00

initial date      12/30/2005

final date        12/31/2010

answer            CAGR  is  2.29%

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