How to Calculate a Five Year CAGR

Save
(Image: NA/AbleStock.com/Getty Images)

CAGR, or "compound annual growth rate," shows how much an investment is earning over a period of years. By using this, investors can understand the value of their investment to see if they should either keep the investment where it is or move it to another location that may offer a larger percentage of growth.

Things You'll Need

  • Starting value of investment
  • Ending value of investment
  • Calculator

Divide the ending value of your investment by the beginning value of your investment. For example, if you started with $1,000 and ended with $1,500 after a five-year period, then your ratio would be 1.5.

Raise your ratio to the power of 0.2. In our example, that means taking 1.5 to the 0.2 power gives us 1.08447. The number 0.2 comes from dividing 1 by the number of years we are calculating the CAGR for. In this example, we are calculating it after five years, and 1 divided by 5 equals 0.2.

Subtract that number by 1. In our example, that means we subtract 1 from 1.08447 to get 0.08447. Move the decimal point over two spaces to the right to convert the number to 8.447 percent. This is your CAGR growth over the five-year period of your investment.

Related Searches

References

Promoted By Zergnet

Comments

You May Also Like

Related Searches

Check It Out

4 Credit Myths That Are Absolutely False

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!