Savings Account Interest Rate Calculator

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Compound Annual Growth Rate (CAGR) Calculator

Result:

Your CAGR will appear here.
.calculator-container { font-family: Arial, sans-serif; max-width: 600px; margin: 20px auto; padding: 20px; border: 1px solid #ccc; border-radius: 8px; background-color: #f9f9f9; } .calculator-inputs, .calculator-results { margin-bottom: 20px; } .input-group { margin-bottom: 15px; } .input-group label { display: block; margin-bottom: 5px; font-weight: bold; } .input-group input[type="number"] { width: calc(100% – 20px); padding: 10px; border: 1px solid #ccc; border-radius: 4px; } button { background-color: #4CAF50; color: white; padding: 10px 15px; border: none; border-radius: 4px; cursor: pointer; font-size: 16px; } button:hover { background-color: #45a049; } #result { font-size: 18px; font-weight: bold; color: #333; margin-top: 10px; background-color: #e8e8e8; padding: 10px; border-radius: 4px; } 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."; return; } // CAGR formula: ((Ending Value / Beginning Value)^(1 / Number of Years)) – 1 var cagr = Math.pow((endingValue / beginningValue), (1 / numberOfYears)) – 1; // Format the result as a percentage var formattedCAGR = (cagr * 100).toFixed(2) + "%"; resultElement.innerHTML = "The Compound Annual Growth Rate (CAGR) is: " + formattedCAGR; }

Understanding Compound Annual Growth Rate (CAGR)

The Compound Annual Growth Rate (CAGR) is a widely used metric to measure the average annual growth of an investment or business over a specified period, assuming that profits were reinvested at the end of each year. It provides a smoothed rate of return, making it easier to understand and compare the performance of different investments over time, irrespective of their volatility during the period.

CAGR is particularly useful because it accounts for the compounding effect of growth. Simple average growth rates can be misleading as they don't consider how earnings in earlier years contribute to growth in later years. CAGR, on the other hand, reflects the actual growth an investment would have experienced if it had grown at a steady rate each year.

How CAGR is Calculated

The formula for CAGR is as follows:

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

Where:

  • Ending Value: The value of the investment or business at the end of the period.
  • Beginning Value: The value of the investment or business at the start of the period.
  • Number of Years: The total number of years in the period.

The result is typically expressed as a percentage.

When to Use CAGR

CAGR is a valuable tool for various financial and business analyses:

  • Investment Performance: Comparing the historical performance of stocks, mutual funds, or other assets.
  • Business Growth: Assessing the annual growth rate of revenue, profit, or customer base over several years.
  • Forecasting: Using historical CAGR to project future growth, although this should be done with caution.
  • Benchmarking: Comparing your business's growth against industry averages or competitors.

Example Calculation

Let's say you invested $10,000 in a stock at the beginning of 2019. By the end of 2023 (a period of 5 years), your investment has grown to $25,000. To calculate the CAGR:

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

Using the formula:

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

CAGR = ( (2.5)^(0.2) ) – 1

CAGR = ( 1.2011 ) – 1

CAGR = 0.2011

Expressed as a percentage, the CAGR is approximately 20.11%. This means your investment grew at an average annual rate of 20.11% over the five-year period.

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