HomeDefinitionsCompareDebt Simple compound growth methodThe financial definition for Simple compound growth method:Calculating a growth rate by relating terminal value to initial value and assuming a constant percentage annual rate of growth between the two values. Similar MatchesCompound Annual Growth RateCompound Annual Growth RateBest defined by example. If you invest $100 today and make 5% in the first year and reinvest ($105) and make 8% in the second year, the compound annual growth rate is 6.489%. The calculation is $100x1.05x1.08=$113.4 which is what you end up with at the end of year two. The average return is [square root(113.4/100) -1]= 0.06489 or 6.489%. Note 1. If we had three compounding periods we would take the cubic root (power of 1/3). Note 2. If we had invested at exactly 6.489 in both periods, we get $100x1.06489x1.06489=$113.4. Note 3. The example is directed to a return - but CAGR could be applied to earnings growth, GDP growth, etc. Compound Annual ReturnCompound Annual ReturnSee: Compound Annual Growth Rate Compound growth rateCompound growth rateSee: Compound Annual Growth Rate Further SuggestionsCompound interestCompound option Compounding Compounding frequency Compounding period Continuous compounding Discrete compounding Click to compare definitions of Simple compound growth method Click to view definitions beginning si |