Compound Annual Growth Rate (CAGR) Calculator
What is Compound Annual Growth Rate (CAGR)?
The Compound Annual Growth Rate (CAGR) is a metric that measures the year-over-year growth rate of an investment over a specified period of time longer than one year. It's essentially a smoothed-out rate of return, representing the average annual growth that would have been required for an investment to grow from its beginning value to its ending value, assuming the profits were reinvested at the end of each year.
CAGR is a valuable tool for several reasons:
- Smoothing Volatility: It smooths out the volatility of an investment's performance over time, giving a clearer picture of its long-term trend.
- Comparison Tool: CAGR allows investors to compare the performance of different investments with varying growth patterns over the same time frame.
- Forecasting: While not a perfect predictor, CAGR can be used to project future investment values based on historical performance.
Formula:
The formula for CAGR is:
$$ \text{CAGR} = \left( \frac{\text{Ending Value}}{\text{Beginning Value}} \right)^{\frac{1}{\text{Number of Years}}} – 1 $$
The result is typically expressed as a percentage.
How to Use the Calculator:
- Beginning Investment Value: Enter the initial amount you invested.
- Ending Investment Value: Enter the final value of your investment at the end of the period.
- Number of Years: Enter the total number of years the investment was held.
- Click "Calculate CAGR" to see the compound annual growth rate.
Example:
Let's say you invested $10,000 in a stock five years ago, and today it's worth $25,000.
- Beginning Investment Value: $10,000
- Ending Investment Value: $25,000
- Number of Years: 5
Using the calculator with these values would show you the CAGR of your investment over those five years.
function calculateCAGR() {
var beginningValue = parseFloat(document.getElementById("beginningValue").value);
var endingValue = parseFloat(document.getElementById("endingValue").value);
var numberOfYears = parseFloat(document.getElementById("numberOfYears").value);
var resultElement = document.getElementById("result");
if (isNaN(beginningValue) || isNaN(endingValue) || isNaN(numberOfYears) || beginningValue <= 0 || endingValue < 0 || numberOfYears <= 0) {
resultElement.innerHTML = "Please enter valid positive numbers for all fields. The beginning value must be greater than zero.";
return;
}
var cagr = Math.pow((endingValue / beginningValue), (1 / numberOfYears)) – 1;
var percentageCAGR = (cagr * 100).toFixed(2);
resultElement.innerHTML = "The Compound Annual Growth Rate (CAGR) is:
" + percentageCAGR + "%";
}
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