# Compound Annual Return

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Related to Compounded Annual Return: CAGR

## Compound Annual Return

The average year-on-year growth rate of an investment over a number of years. While investments usually do not grow at a constant rate, the compound annual return smoothes out returns by assuming constant growth. This makes accounting for the investment tidier. It is calculated as:

Compound annual return = (Ending Value / Beginning Value)^((1 / n) - 1) where n is the length of time of the investment in years. It is also called the compound annual growth rate. See also: Average Annual Growth Rate.
References in periodicals archive ?
Bill Zhan's Tianyou Fund has had a compounded annual return of 35.
American Capital earned a 15 percent compounded annual return on the exit of its equity investments, including dividends, fees and net gains.
The relationship between ex post stock returns and an ex ante forecast of stock returns based on an inflation premium model may be evaluated by regressing the compounded annual returns on the stock market from the beginning of each year of the sample, through the ending sample date, on an independent variable specified to be a time series of ex ante forecasts.
Since American Capital's 1997 IPO through 3Q15, the company has earned a 9% compounded annual return, including interest, dividends, fees and net gains, on approximately 515 realisations of senior debt, subordinated debt, equity and structured products investments, totaling USD 25bn of committed capital.
Did you know that a 25 year old who invests only P5,000 a month until he is 35 years old will have P20 million by the time he retires at age 65 (assuming a compounded annual return of 10 percent?
The BSE Sensex has given a compounded annual return of over 15 per cent in the past 25 years, but don't bank upon such performances.
Other ways are investing in hedge funds or commodity trading advisors that focus on the energy markets, such as the Cogent Energy Investment Managemennt Commodity Strategy fund, which has a compounded annual return of 18% since it started in 2013.

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