Compound Annual Growth Rate (CAGR) Calculator
Determine the smoothed annualized rate at which an investment grows from initial balance to final balance, assuming yearly compounding.
Enter parameters on the left to calculate CAGR.
Understanding CAGR (Compound Annual Growth Rate)
The Compound Annual Growth Rate (CAGR) is the geometric progression ratio that provides a constant rate of return over the time period. It is essentially a representational figure rather than a real-world yield; it “smoothes” the returns of an investment, showing what it would have returned annually if it had grown at a steady, consistent rate.
The Mathematical Formula
CAGR is calculated using the following equation:
Where:
- Start Value = The initial capital or investment amount.
- End Value = The final valuation or balance at the end of the span.
- n = The investment period in years (can be a fraction, e.g. 2.5 years).
Worked Example
Scenario: 3-Year Stock Market Compound Return
- Initial Investment: $10,000
- Final Portfolio Value: $15,000
- Duration: 3 Years
Plugging the values into the formula: (15,000 / 10,000)(1/3) – 1 = 1.50.3333 – 1 = 14.47%.
This indicates your portfolio grew at a smoothed compounding equivalent rate of 14.47% per year.