CAGR (Compound Annual Growth Rate)
The mean annual growth rate of an investment over a specified period longer than one year.
Definition
Compound Annual Growth Rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming profits were reinvested at the end of each period. CAGR smooths out the volatility of periodic returns to show a single growth rate. The formula is CAGR = (Ending Value / Beginning Value)^(1/n) - 1, where n is the number of years. For example, an investment growing from $10,000 to $20,000 over 7 years has a CAGR of approximately 10.4%. CAGR is useful for comparing the performance of different investments over the same time period. It does not reflect investment risk or volatility.
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