How Do You Calculate The Compound Growth Rate?
Compound annual growth rate, often shown as CAGR, is used to measure the rate of return of an investment. It is most useful as a way to measure an investment’s performance over time, as it takes into account both the time value of money and the initial investment. The compound annual growth rate is a good calculation for novice investors to learn how to use because it smooths out any large changes in profit or loss over the years and leaves you with an average annual rate of return that is simple to understand. Here is how to calculate CAGR. Gather your data. To calculate the compound annual growth rate, you will need to know what your initial investment was, what the value of your investment is now and how many years you’ve held the investment. Plug your data into the following formula: CAGR=((last year/first year)^(1/n-1))-1. In this case, last year is simply the current value of your investment, while first year is the amount your originally invested. “N” is the number of years you
