The Compound Annual Growth Rate (CAGR) measures the mean annual growth rate of an investment over a specified time period longer than one year. It is widely used to evaluate the past performance of investments or to project future returns.
CAGR = (FV / BV)^(1 / t) - 1
Use our CAGR Calculator to determine the Compound Annual Growth Rate (CAGR) of an investment or financial asset over a given time period. CAGR is a useful metric to calculate the growth rate of an investment, assuming the investment has grown at a steady rate over the specified period.
The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year. Unlike a simple average, CAGR accounts for the effect of compounding, providing a more accurate representation of growth.
CAGR Formula:
CAGR = (Ending Value / Beginning Value)^(1 / n) - 1
Where:
Example 1: Investment Growth
Let's say you invested $1,000 and the investment grew to $2,000 over a period of 5 years.
CAGR = (2000 / 1000)^(1 / 5) - 1 = 2^(0.2) - 1 = 0.1487 = 14.87%
So, the Compound Annual Growth Rate (CAGR) is 14.87%.
Example 2: Stock Portfolio Growth
If you had an initial portfolio value of $10,000, which grew to $15,000 in 3 years:
CAGR = (15000 / 10000)^(1 / 3) - 1 = 1.5^(0.3333) - 1 = 0.1447 = 14.47%
So, the Compound Annual Growth Rate (CAGR) is 14.47%.
Example 3: Real Estate Investment
Imagine you purchased real estate for $250,000, and the property value increased to $350,000 over 4 years:
CAGR = (350000 / 250000)^(1 / 4) - 1 = 1.4^(0.25) - 1 = 0.0845 = 8.45%
So, the Compound Annual Growth Rate (CAGR) is 8.45%.