CAGR...

Is there anyone expert in stats??? Need ur help coz my boss just make me confusing...usually i'm using as per below calculation but my boss said that the n should be 19 instead of 20....hermmm....argh...mana satu nih...aci tak lawan cakap boss...haippp

How to Compute Compound Annual Growth Rate – CAGR


By JLP
June 8, 2006

Ricemutt over at Experiments in Finance has written some wonderful posts (here, here, and here) on financial math. It was through her (I think Ricemutt is a “her,” but I’m not positive on that) posts that I discovered the meaning of Compound Annual Growth Rate or CAGR as it is commonly known. Yes, I was aware of CAGR but I never really thought about it much. I didn’t know it at the time that I put my Average vs. Geometric Average post together using an Excel spreadsheet, but CAGR and Geometric Average are the same thing. And, to top it off, I found a formula for calculating them that is MUCH easier than I previously understood. That’s good for all of us!

If you remember from the Average vs. Geometric Average post, the beginning value of the example was $10,000 and at the end of 20 years, the ending value was $95,421.19. To compute the CAGR for this example you use this formula:

CAGR = [(Ending Value ÷ Beginning Value)1/n] – 1

where “n” is the number of time periods (20 years for this example)

Substituting the numbers from the example, the equation looks like this:

CAGR = [($95,421.19 ÷ $10,000)1/20] – 1

CAGR = [9.542119.05] – 1

CAGR = 1.119392 – 1

CAGR = .119392 or 11.94%

That’s the exact same answer we got in the previous post: