How to Calculate CAGR in Excel Using the RATE Function
Compound Annual Growth Rate (CAGR) is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time. While the mathematical formula involves roots and exponents, Microsoft Excel offers a streamlined financial function called RATE that simplifies this process significantly.
This article explains how to utilize the RATE function for CAGR calculations and details the specific syntax required to avoid common errors.
Understanding the Excel RATE Function
The RATE function in Excel is primarily designed to calculate the interest rate per period of an annuity. However, by manipulating the inputs—specifically by setting the regular payment (PMT) to zero—we can adapt it to calculate the CAGR of a lump sum investment.
The standard syntax for the function is:
=RATE(nper, pmt, pv, [fv], [type], [guess])
Step-by-Step Configuration for CAGR
To calculate CAGR, you only need the first four arguments. Here is how to map your investment data to the function arguments:
Argument
Definition
CAGR Mapping
NPER
Total number of payment periods.
The duration of the investment (e.g., Years).
PMT
The payment made each period.
0 (Zero). Since CAGR assumes no additional contributions, this must be zero.
PV
Present Value.
-Beginning Value. Crucial: This must be a negative number to represent cash outflow.
FV
Future Value.
Ending Value. This represents the cash inflow at the end.
Important Syntax Note: Excel's financial functions operate on the principle of cash flow. If you invest money, it leaves your pocket (negative value). When you withdraw it later, it enters your pocket (positive value). If you do not make the PV negative, Excel will return a #NUM! error.
Example Calculation
Let's say you invested 10,000 (PV) and after 5 years (NPER), the investment grew to 25,000 (FV).
The manual formula calculation would be: (25000 / 10000)^(1/5) – 1 = 20.11%.
Using the Excel RATE function, you would type:
=RATE(5, 0, -10000, 25000)
Result: 20.11%
Alternative: The RRI Function
In newer versions of Excel (2013 and later), there is a specific function dedicated to this calculation called RRI (Equivalent Interest Rate for the Growth of an Investment).
The syntax is simpler because it does not require negative numbers:
=RRI(nper, pv, fv)
Using the previous example: =RRI(5, 10000, 25000) returns the same 20.11%. However, RATE is more backward-compatible and flexible if you eventually decide to add annual contributions (PMT).
FAQ: Common Excel Errors
#NUM! Error: Usually occurs if you forgot to make the PV (Beginning Value) negative, or if the FV is not greater than the PV (though negative growth is mathematically possible, Excel's RATE iteration might fail if signs aren't opposite).
#VALUE! Error: Occurs if any of the cells referenced contain non-numeric characters.
Result looks like 0 or 1: Your cell formatting might be set to "Number" or "General" instead of "Percentage". Change the cell format to Percentage to see the decimals (e.g., 15.4% instead of 0.15).
function calculateCAGR() {
// 1. Get input values
var bv = document.getElementById("cagr_bv").value;
var ev = document.getElementById("cagr_ev").value;
var nper = document.getElementById("cagr_nper").value;
// 2. Clear previous results
var resultContainer = document.getElementById("result-container");
resultContainer.style.display = "none";
// 3. Validation
var start = parseFloat(bv);
var end = parseFloat(ev);
var years = parseFloat(nper);
if (isNaN(start) || isNaN(end) || isNaN(years)) {
alert("Please enter valid numeric values for all fields.");
return;
}
if (start === 0) {
alert("Beginning Value cannot be zero for CAGR calculations.");
return;
}
if (years <= 0) {
alert("Number of periods must be greater than zero.");
return;
}
// 4. Calculate CAGR Logic
// Formula: (End / Start) ^ (1 / N) – 1
var ratio = end / start;
// Handle negative bases for roots (complex numbers not supported in standard CAGR)
// If start is negative and end is positive, CAGR is not standard.
// We assume standard positive investment growth for this tool.
var cagrDecimal = Math.pow(ratio, (1 / years)) – 1;
var cagrPercent = (cagrDecimal * 100).toFixed(2);
// Calculate Total Absolute Growth
var totalGrowth = ((end – start) / start) * 100;
// 5. Generate Excel String
// Format: =RATE(nper, 0, -pv, fv)
// We ensure start is formatted as a negative number in the string logic for the user
var excelString = "=RATE(" + years + ", 0, -" + start + ", " + end + ")";
// 6. Display Results
document.getElementById("res_cagr").innerHTML = cagrPercent + "%";
document.getElementById("res_growth").innerHTML = totalGrowth.toFixed(2) + "%";
document.getElementById("res_excel").innerHTML = excelString;
resultContainer.style.display = "block";
}