CAGR (Compound Annual Growth Rate)
The annual growth rate of an investment over a period.
Definition
CAGR is the mean annual growth rate of an investment over a specified period longer than one year. It smooths out the effects of volatility and shows the consistent rate of growth.
Example
If an investment grows from $1000 to $2000 in 3 years, CAGR ≈ 26% per year.
Calculation
CAGR=[(Final Value÷Initial Value)1/n− 1]
Example: If an investment grows from $1000 to $2000 in 3 years:
CAGR =[(2000 ÷1000)1/3 − 1]
CAGR ≈ 26% per year
CAGR =[(2000 ÷1000)1/3 − 1]
CAGR ≈ 26% per year