1. What is CAGR?

The 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:

• \( Initial \) — Starting value (currency)
• \( CAGR \) — Compound annual growth rate (decimal)
• \( Years \) — Investment period in years

Explanation: The formula calculates the exponential growth of an investment over time, accounting for compounding effects.

3. Importance of CAGR Calculation

Details: CAGR is important because it provides a smoothed annualized return that eliminates the volatility of periodic returns. It's widely used to compare investments and business metrics over time.

4. Using the Calculator

Tips: Enter initial value in currency units, CAGR as a decimal (e.g., 0.1 for 10%), and years as a whole number. All values must be valid (initial > 0, years ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CAGR and average growth rate?
A: CAGR accounts for compounding, while average growth rate simply divides total growth by number of periods, ignoring compounding effects.

Q2: Can CAGR be negative?
A: Yes, a negative CAGR indicates a declining value over the period.

Q3: What are typical CAGR values for investments?
A: Stock markets typically return 7-10% CAGR long-term. Higher CAGRs may indicate higher risk investments.

Q4: Does CAGR account for volatility?
A: No, CAGR shows only the smoothed annual growth rate and doesn't reflect investment risk or volatility during the period.

Q5: When shouldn't I use CAGR?
A: CAGR isn't appropriate for short-term investments or when cash flows occur at different times during the period.