What is the Compound Annual Growth Rate?

Compound growth rate

Compound annual growth rate

Right!
Compound growth rate
The annual growth rate of an investment over a specific period
Calculated as the square root of the percentage of total growth, where n is equal to the number of years in the relevant period
Chinese name
Compound annual growth rate
Nature
growth rate
Attributes
Compound year
Explanation
Annual growth rate over a specific period
The formula is:
(Existing Value / Base Value) ^ (1 / years)-1
The English abbreviation for compound growth rate is CAGR (Compound Annual Growth Rate).
CAGR is not equal to the value of GR (Growth Rate) in real life. Its purpose is to describe the expected value obtained by converting an investment return rate into a more stable investment return. We can think that CAGR smoothes the return curve and will not be lost for the drastic changes in short-term returns.
The concept is not complicated. For example, you initially invested $ 10,000 on January 1, 2005, and by January 1, 2006 your assets grew to $ 13,000, by 2007 it grew to $ 14,000, and by January 1, 2008 To $ 19,500.
According to the calculation formula, Your CAGR would be the ratio of your ending value to beginning value (19,500 / 10,000 = 1.95) raised to the power of 1/3 (since 1 / # of years = 1/3), then subtracting 1 from the resulting number.
1.95 raised to 1/3 power = 1.2493. (This could be written as 1.95 ^ 0.3333)
1.2493 -1 = 0.2493
Another way of writing 0.2493 is 24.93%.
The calculated CAGR is 24.93%, which means that your three-year return on investment is 24.93%, which is about to flatten the growth rate calculated by year on the time axis. Of course, you also see that the growth rate in the first year is 30% (13000-10000) / 10000 * 100%
It can be understood that the annual growth rate is a short-term concept. From the perspective of the development of a product or industry, it may be in the growth stage or the outbreak period and the annual results vary greatly. This is a long-term calculation based on time, so it can better explain the potential and expectations of industry or product growth or change.

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