Invt Calculator

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Reviewed by David Chen, CFA This calculator and its content have been reviewed for accuracy and relevance by a Certified Financial Analyst (CFA) to ensure the highest standards of financial education.

Use the Annualized Return Calculator (invt calculator) to quickly determine the Compound Annual Growth Rate (CAGR) of an investment, or solve for the initial value, future value, or time period required to reach a specific financial goal.

Annualized Return Calculator (invt calculator)

Calculated Result:
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Detailed Calculation Steps

Enter your values and click 'Calculate' to see the detailed steps here.

Annualized Return Calculator Formula:

$$CAGR = \left(\frac{\text{Future Value}}{\text{Initial Investment}}\right)^{\frac{1}{\text{Number of Years}}} – 1$$

Formula Source (Investopedia): Compound Annual Growth Rate (CAGR)

Variables:

  • Initial Investment (P): The starting amount of capital used to purchase the investment.
  • Future Value (F): The final balance of the investment at the end of the period, including all gains.
  • Annual Return Rate (R): The compounded average growth rate of the investment per year (expressed as a percentage).
  • Number of Years (N): The total length of time (in years) the investment was held or projected to be held.

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What is Annualized Return (invt calculator)?

The Annualized Return, commonly measured by the Compound Annual Growth Rate (CAGR), is the mean annual growth rate of an investment over a specified period longer than one year. It is a key metric used to evaluate and compare the performance of different investments, as it smooths out returns over time.

Unlike simple average return, CAGR takes into account the compounding effect, meaning it assumes that the profits from the previous year are reinvested. This makes it a more realistic and powerful measure of return efficiency, providing investors with a clear picture of their investment’s growth path on a year-by-year basis.

How to Calculate Annualized Return (Example):

  1. Define the Variables: Assume an Initial Investment (P) of $10,000 and a Future Value (F) of $18,000 after 7 years (N).
  2. Calculate the Ratio: Divide Future Value by Initial Investment: $18,000 / $10,000 = 1.8$.
  3. Calculate the Fractional Exponent: Take the exponent $1/N$, which is $1/7 \approx 0.142857$.
  4. Apply the Formula: Raise the ratio (1.8) to the fractional exponent: $1.8^{0.142857} \approx 1.0886$.
  5. Subtract One: Subtract 1 from the result to get the rate: $1.0886 – 1 = 0.0886$.
  6. Convert to Percentage: Multiply by 100. The Annualized Return (CAGR) is approximately 8.86%.

Frequently Asked Questions (FAQ):

What is the difference between CAGR and Annual Return?

Annual Return is the growth in value in a single year, which can be volatile. CAGR is the smoothed, geometric average rate of return over multiple years, providing a better measure of consistent performance.

Can this calculator solve for time (N)?

Yes, this calculator can solve for any of the four missing variables (Initial Value, Future Value, Rate, or Years), provided the other three are known and valid.

Is the Annualized Return always positive?

No. If the Future Value is less than the Initial Investment (a net loss), the calculated Annualized Return (CAGR) will be a negative percentage.

What inputs are required for the calculation?

You must provide exactly three out of the four variables (Initial Investment, Future Value, Rate, or Years) to solve for the missing one. Entering fewer or all four will result in an error or a consistency check.

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