## What does the compound annual growth rate (CAGR) mean?

Investors looking to measure the return of their investment may use the CAGR. It is a useful tool to find the average yearly growth of the investment. It is based on the assumption that earnings are reinvested. The absolute annual return does not take into account the compounding, so the CAGR is a more accurate way to calculate yearly returns as it reflects the consistent rate at which the asset has grown. Formula to calculate CAGR Example: Let’s use an …

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