Unlocking the Power of CAGR

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CAGR is a key metric for investment evaluation, providing a clear picture of investment growth over time. It is widely used in finance to measure and compare the performance of different investments. The calculation of CAGR involves the formula: CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) - 1. This metric is important because it smooths out the volatility and fluctuations that can occur in year-to-year growth rates, giving investors a more accurate understanding of an investment's performance. Real-world examples of CAGR can be seen in the stock market. For instance, the index's CAGR from 2011 to 2020 was 13.6%, which means that investors who invested in the index during this period had an average annual return of 13.6%. This demonstrates the index's long-term growth rate and the potential benefits of investing in the stock market.