What is CAGR?
CAGR (Compound Annual Growth Rate) represents the average annual growth rate of an investment over a period of time.
The CAGR Formula
The formula is short and memorable:
r = (F / P) ^ (1 / t) - 1
- F — final value (or total amount returned)
- P — principal (the starting amount)
- r — CAGR, as a decimal (so 6% becomes 0.06)
- t — time in years
A Worked Example
Suppose your starting amount is $5,000, and you have $7,000 after 3 years of investment. Plugging into the formula:
r = (7000/5000)^(1/3)-1 = 11.87%
Another example: If an investment grows from $1,000 to $2,000 in 3 years, the CAGR is about 26%.
Tips for Using This Calculator
- Enter the Principal Amount greater than 0.
- For sub-year periods, use a fractional year. 6 months is 0.5, 90 days is roughly 0.25.