1. What is CAGR?

CAGR (Compound Annual Growth Rate) 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
• \( Number\ of\ Years \) — Total 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 different investments, evaluate business performance, and forecast future growth. It eliminates the volatility of periodic returns.

4. Using the Calculator

Tips: Enter the beginning value, ending value, and number of years. All values must be positive numbers (beginning value > 0, ending value > 0, years ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CAGR and annual growth rate?
A: CAGR is the geometric average, while annual growth rate can vary year to year. CAGR provides a smoothed annual rate.

Q2: Can CAGR be negative?
A: Yes, if the ending value is less than the beginning value, CAGR will be negative, indicating a loss.

Q3: What are typical CAGR values for investments?
A: Stock market averages 7-10%, bonds 3-5%, but this varies widely by investment type and time period.

Q4: What are limitations of CAGR?
A: CAGR doesn't account for volatility, risk, or cash flows during the period. It assumes smooth growth.

Q5: Can CAGR be used for periods less than one year?
A: While mathematically possible, CAGR is typically used for multi-year periods to show meaningful annualized growth.