1. What is a CAGR Calculator?

Definition: The Compound Annual Growth Rate (CAGR) calculator measures the mean annual growth rate of an investment over a specified time period longer than one year.

Purpose: It provides a smoothed annual rate that eliminates the volatility of periodic returns, making it easier to compare different investments.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( CAGR \) — Compound Annual Growth Rate (decimal)
• \( FV \) — Future Value of the investment ($)
• \( PV \) — Present Value or initial investment ($)
• \( t \) — Investment period in years

Explanation: The formula calculates the consistent rate of return required for an investment to grow from PV to FV over t years.

3. Importance of CAGR Calculation

Details: CAGR helps investors compare different investment options, evaluate business growth, and make informed financial decisions.

4. Using the Calculator

Tips: Enter the initial investment (PV), final value (FV), and time period in years. All values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CAGR and average annual return?
A: CAGR accounts for compounding, while average return simply divides total return by years, ignoring compounding effects.

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

Q3: What are the limitations of CAGR?
A: CAGR assumes smooth growth and doesn't reflect investment risk or volatility during the period.

Q4: How do I interpret a 10% CAGR?
A: It means the investment grew at an equivalent rate of 10% per year, compounded annually.

Q5: Can I use CAGR for periods less than one year?
A: While mathematically possible, CAGR is designed for multi-year periods and may be misleading for shorter durations.