How to Calculate Compound Annual Growth Rate - Tutorial, Definition, Formula, Example

How to Calculate CAGR - Tutorial

Definition:

Compound annual growth rate (CAGR) measures the rate of return for an investment such as a mutual fund or bond over a specific period of time. It is a useful measure for the growth of your investment.

Formula:

CAGR = (Endinging value/Beginning value) 1/Number of Periods - 1 Where, CAGR - Compound Annual Growth Rate
Example:

Hiox invested $15,000 in a portfolio on Nov 17, 2004. Let's say by Nov 17, 2006, the company’s portfolio had grown to $16,000, by 2007 the profit is $17,000 , and finally ended up at $6,50,000 by 2013

Given,

Beginning value = $15,000 Ending value = $6,50,000

Solution:

Substitute the values in the formula,

CAGR = (Endinging value/Beginning value) 1/Number of Periods - 1
  = (650000 / 15000)1/9 - 1
  = 0.52009
  = 0.52009 * 100
  = 52.009 %

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