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:

• \( FV \) — Future Value of the investment
• \( Initial \) — Initial investment amount
• \( years \) — Investment period in years

Explanation: The formula calculates the constant rate of return that would be required for an investment to grow from its initial balance to its future value over the investment period.

3. Importance of CAGR Calculation

Details: CAGR is important because it provides a smoothed annual rate that eliminates the volatility of periodic returns. Investors use CAGR to compare the performance of different investments and to project future growth.

4. Using the Calculator

Tips: Enter the future value in USD, initial investment in USD, and investment period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is CAGR different from average annual return?
A: CAGR accounts for compounding, while average return simply divides total return by number of years, ignoring compounding effects.

Q2: What are typical CAGR values for investments?
A: Stock market averages about 7-10% CAGR long-term. Higher-growth investments may show 15-30% CAGR over shorter periods.

Q3: What are the limitations of CAGR?
A: CAGR doesn't account for investment risk, volatility, or cash flows during the investment period. It assumes smooth growth.

Q4: Can CAGR be negative?
A: Yes, if the investment loses value over the period, CAGR will be negative, representing an annualized loss.

Q5: How is CAGR used in business?
A: Businesses use CAGR to analyze revenue growth, customer acquisition rates, market expansion, and other metrics over time.