CAGR Calculation
An investment grows from $10,000 to $15,000 over 3 years.
- Initial Value:
- 10000
- Final Value:
- 15000
- Number of Years:
- 3
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Valuation★ Essential⚗ Includes simulator
CAGR
CAGR is the average annual growth rate of an investment over a specified period.
Deep dive
CAGR (Compound Annual Growth Rate) is used to measure the growth of an investment or a business over multiple years, smoothing out annual fluctuations. It is particularly useful for comparing the performance of different investments. However, it does not account for annual volatility and can mask fluctuations.
Key formula
CAGR = [(Final Value / Initial Value) ^ (1 / Number of Years)] - 1
Real-world examples
Pitfalls to avoid
- Confusing CAGR with average annual return.
- Ignoring annual volatility in returns.
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