CAGR stands fora)Compound aggregate growth rateb)Consolidated annual g...
The correct answer is option 'C' - Compound annual growth rate.
Explanation:
- Compound Annual Growth Rate (CAGR) is the rate at which an investment grows over a specific period of time, assuming that the profits are reinvested.
- CAGR is a financial metric that can be used to calculate the average annual growth rate of an investment over a specific period of time.
- CAGR is often used to compare the performance of different investments, especially those that have different starting and ending values.
- It is calculated by taking the nth root of the total percentage growth rate, where n is the number of years in the period being considered.
- The formula for CAGR is: [(Ending Value / Beginning Value)^(1/n)] - 1, where n is the number of years.
- CAGR is expressed as a percentage and is a useful tool for measuring the performance of investments over time.
Example:
Suppose you invested $10,000 in a stock that had a value of $12,000 after one year, $15,000 after two years, and $18,000 after three years. To calculate the CAGR of this investment over the three-year period, the formula would be:
CAGR = [(18,000 / 10,000)^(1/3)] - 1 = 16.07%
This means that the investment had an average annual growth rate of 16.07% over the three-year period.
Conclusion:
CAGR is an important financial metric that can be used to measure the performance of investments over a specific period of time. It is commonly used by investors, analysts, and financial institutions to compare the performance of different investments and to evaluate their potential returns.
CAGR stands fora)Compound aggregate growth rateb)Consolidated annual g...
Option C is correct - Compound Annual Growth Rate.
The CAGR is a mathematical formula that provides a "smoothed" rate of return. It is really a pro forma number that tells you what an investment yields on an annually compounded basis — indicating to investors what they really have at the end of the investment period. ... Using average annual return does not work.
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