(CAGR)Compound Annual Growth Rate

CAGR – Compound Annual Growth Rate  is a (term) calculation that help’s you to know how much investment grew over a specific period of time. CAGR can be used to measure investments of different types with one another.

In case you want to compare two investments CAGR helps you. It takes into the account the period for which you stayed invested . In other words you use CAGR when you want to check returns over multiple years.

To calculate Compound Annual Growth Rate You must know these three numbers.

1. The investment made in the initial year (the first year of investment)

2. Value of investment at the end of the year

3. Tenure of investment.

The formula for Compound Annual Growth Rate :

Compound Annual Growth Rate (CAGR)

Applying this to previous TCS share (Assume you hold it for 2 years):

CAGR={[1880/1800]^(1/2)-1}   = 2.2% per year

Tip : If you are using a financial calculator, use the yx button to raise ( 1880/ 1800) to the power of 0.5 (since 1 / 2 = 0.5 ).

This means the investment grew at a rate of 2.2% for 2 years.

Close Menu
error: Content is protected !!