1. What is Compound Annual Growth Rate (CAGR)?

Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

2. How Does the Calculator Work?

The calculator uses the CAGR formula:

Where:

• \( Ending\ Value \) — Final value of the investment
• \( Beginning\ Value \) — Initial value of the investment
• \( Number\ of\ Years \) — Investment period in years

Explanation: CAGR smooths the growth rate as if the investment had grown at a steady rate on an annually compounded basis.

3. Importance of CAGR Calculation

Details: CAGR is widely used to compare the historical returns of stocks, mutual funds, and other investments. It helps investors understand the average annual growth rate of their investments over multiple periods.

4. Using the Calculator

Tips: Enter the beginning value, ending value, and number of years. All values must be positive numbers. The calculator will provide the CAGR as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good CAGR?
A: A "good" CAGR depends on the investment type and market conditions. Generally, 7-10% is considered good for stock investments over the long term.

Q2: How is CAGR different from average annual return?
A: CAGR accounts for compounding, while average annual return does not. CAGR provides a more accurate representation of growth over time.

Q3: Can CAGR be negative?
A: Yes, if the ending value is less than the beginning value, CAGR will be negative, indicating a loss over the period.

Q4: What are the limitations of CAGR?
A: CAGR assumes smooth growth and doesn't account for volatility or intermediate cash flows. It's best used for comparing investments with similar risk profiles.

Q5: How do I interpret a 15% CAGR?
A: A 15% CAGR means your investment grew at an average rate of 15% per year over the specified period, assuming compounding.