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What does CAGR mean in financial terms?

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CAGR is an acronym that stands for compound annual growth rate, as noted by Investopedia. Essentially, it is the ratio of the ending value of an investment when compared to its beginning value.

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Full Answer

The CAGR is an imaginary number that describes the rate that a particular investment would have grown if the rate remained steady. For example, if an investment of $10,000 grows to $13,000 in a year's time and $19,500 by 3 years, then the CAGR would be determined by dividing $19,500 by the initial investment of $10,000, raised to the power of 1/3, to designate the number of years invested. This equals out to 1.95 to the third power, which is 1.2493 minus 1.00, which equals a CAGR of 24.93 percent.

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