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How to Calculate Compound Annual Growth Rate (CAGR) In Excel: Step-By-Step Guide

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Duration: 8:34
Submitted: 7 months ago
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Description:

If you want to know how your investment is doing, you need to calculate the compound annual growth rate (CAGR). This will tell you how much your investment has grown each year, on average.

You can use the RRI function in Excel to do this. In this blog post, we will show you how to use this function and explain what it means. We will also provide an example so that you can see how it works.

What is Compound Annual Growth Rate (CAGR)?

The compound annual growth rate (CAGR) is a measure of how much an investment has grown, on average, over a period of time. It takes into account the effect of compounding interest.

This means that the CAGR will be higher than the simple annual growth rate (SAGR), which only looks at the change in the investment's value from one year to the next.

\text{CAGR} = \left( \frac{V_\text{final}}{V_\text{begin}} \right)^{1/t} - 1

where;

CAGR = compound annual growth rate

Vbegin = beginning value

Vfinal = final value

t = time in years

How to Calculate the CAGR in Excel

To calculate the compound annual growth rate (CAGR) of an investment in Excel, you can use the RRI function. This function takes four arguments:

- Vbegin: The beginning value of the investment

- Vfinal: The final value of the investment

- t: The number of years over which you want to calculate the CAGR

- type: The type of return that you want to use. This can be either "I" for inflation-adjusted returns or "F" for nominal returns.

The RRI function will return the compound annual growth rate for the given set of data.

The syntax of RRI function is as follows;

=RRI(Vbegin, Vfinal, t, type)

An Example of How to Use the RRI Function

Suppose you have the following data:

- Vbegin: $100

- Vfinal: $200

- t: five years

- type: "I" (inflation-adjusted returns )

The RRI function will return the compound annual growth rate for this data. The syntax of the function is as follows;

=RRI(100, 200, 60, "I")

This will return a compound annual growth rate of 14%. Note that this is different from the simple annual growth rate (SAGR), which would return a compound annual growth rate of 15%.

The RRI function takes into account the effect of compounding interest, which will give you a more accurate measure of the investment's growth.

Conclusion

The compound annual growth rate (CAGR) is a useful measure of how an investment is doing. You can use the RRI function in Excel to calculate this rate for any given set of data.

We hope you found this blog post helpful. If you have any questions, please don't hesitate to ask us in the comments section.