How Do You Calculate Effective Interest Rate

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Compound Annual Growth Rate (CAGR) Calculator

The Compound Annual Growth Rate (CAGR) is a metric that measures the average annual rate of return of an investment over a specified period of time greater than one year. It represents the smoothed-out rate of return, assuming that profits were reinvested at the end of each year during the investment period. CAGR is a useful tool for understanding how an investment has performed historically and for comparing the performance of different investments.

Result:

Understanding CAGR

CAGR is calculated using the following formula:

CAGR = ( (Ending Value / Starting Value) ^ (1 / Number of Years) ) – 1

Where:

  • Ending Value: The value of the investment at the end of the period.
  • Starting Value: The value of the investment at the beginning of the period.
  • Number of Years: The total number of years the investment was held.

CAGR is a valuable metric because it smooths out volatility and provides a single, representative annual growth rate. This makes it easier to compare investments with different time horizons and risk profiles. For example, if an investment grew from $10,000 to $15,000 over 5 years, its CAGR would indicate the consistent annual growth rate that would have resulted in that final value.

function calculateCAGR() { var startingValue = parseFloat(document.getElementById("startingValue").value); var endingValue = parseFloat(document.getElementById("endingValue").value); var numberOfYears = parseFloat(document.getElementById("numberOfYears").value); var resultDiv = document.getElementById("result"); if (isNaN(startingValue) || isNaN(endingValue) || isNaN(numberOfYears) || startingValue <= 0 || numberOfYears <= 0) { resultDiv.innerHTML = "Please enter valid positive numbers for all fields."; return; } var cagr = Math.pow((endingValue / startingValue), (1 / numberOfYears)) – 1; resultDiv.innerHTML = "The Compound Annual Growth Rate (CAGR) is: " + (cagr * 100).toFixed(2) + "%"; }

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