How to Calculate Interest Rate on Savings

by

Compound Annual Growth Rate (CAGR) Calculator

.calculator-container { font-family: sans-serif; border: 1px solid #ccc; padding: 20px; border-radius: 8px; max-width: 400px; margin: 20px auto; background-color: #f9f9f9; } .calculator-inputs { margin-bottom: 20px; } .input-group { margin-bottom: 15px; } .input-group label { display: block; margin-bottom: 5px; font-weight: bold; color: #333; } .input-group input[type="number"] { width: calc(100% – 12px); padding: 8px; border: 1px solid #ddd; border-radius: 4px; box-sizing: border-box; /* Include padding and border in the element's total width and height */ } button { background-color: #4CAF50; color: white; padding: 10px 15px; border: none; border-radius: 4px; cursor: pointer; font-size: 16px; width: 100%; } button:hover { background-color: #45a049; } #result { margin-top: 20px; padding: 15px; background-color: #e7f3fe; border-left: 6px solid #2196F3; text-align: center; font-size: 1.1em; color: #333; } function calculateCAGR() { var beginningValue = parseFloat(document.getElementById("beginningValue").value); var endingValue = parseFloat(document.getElementById("endingValue").value); var numberOfYears = parseFloat(document.getElementById("numberOfYears").value); var resultDiv = document.getElementById("result"); if (isNaN(beginningValue) || isNaN(endingValue) || isNaN(numberOfYears)) { resultDiv.innerHTML = "Please enter valid numbers for all fields."; return; } if (beginningValue <= 0) { resultDiv.innerHTML = "Beginning Value must be greater than zero."; return; } if (numberOfYears <= 0) { resultDiv.innerHTML = "Number of Years must be greater than zero."; return; } var cagr = Math.pow((endingValue / beginningValue), (1 / numberOfYears)) – 1; var cagrPercentage = (cagr * 100).toFixed(2); resultDiv.innerHTML = "The Compound Annual Growth Rate (CAGR) is: " + cagrPercentage + "%"; }

What is Compound Annual Growth Rate (CAGR)?

The Compound Annual Growth Rate (CAGR) is a financial metric that represents the mean annual growth rate of an investment over a specified period of time longer than one year. It smooths out the volatility of returns by calculating what the growth rate would have been if the investment had grown at a steady rate each year. CAGR is particularly useful for comparing the performance of different investments with varying growth patterns over the same time frame.

How to Calculate CAGR

The formula for calculating CAGR is:

CAGR = [ (Ending Value / Beginning Value) ^ (1 / Number of Years) ] – 1

  • Beginning Value: The initial value of the investment at the start of the period.
  • Ending Value: The final value of the investment at the end of the period.
  • Number of Years: The total duration of the investment period in years.

The result is typically expressed as a percentage.

Why is CAGR Important?

CAGR provides a more stable and reliable measure of growth than simple average returns, especially when dealing with investments that experience significant fluctuations year over year. It helps investors understand the consistent rate of return they could expect from an investment and is commonly used to:

  • Evaluate the historical performance of stocks, mutual funds, or other assets.
  • Compare the growth potential of different investment opportunities.
  • Set realistic growth targets for businesses and investments.

Example Calculation:

Let's say you invested $10,000 in a stock portfolio at the beginning of 2018. By the end of 2022 (a period of 5 years), your portfolio grew to $25,000.

  • Beginning Value = $10,000
  • Ending Value = $25,000
  • Number of Years = 5

Using the CAGR formula:

CAGR = [ ($25,000 / $10,000) ^ (1 / 5) ] – 1

CAGR = [ (2.5) ^ (0.2) ] – 1

CAGR = [ 1.2011 ] – 1

CAGR = 0.2011

As a percentage, this is 20.11%. This means your investment grew at an average annual rate of 20.11% over the 5-year period.

Leave a Comment