Info 1: compound growth rate definition
Info 2: calculation for compound growth
Info 3: compound number vs growth rate
Info 4: example for compounds growth rate
Quick pick:
Take the initial and final value, then divide. Next take Dividend answer to find the square root to arrive the growth rate using the decimal point.
This article occupied the information about what is compounds growth rate, how the compounds growth rate works, and what is the difference between compound number vs growth rate, finally one brief example about the
compounds growth rate rules.
Info 1: compound growth rate definition
Mr.Narien is the stock investor and forex trader who invest in the stock with long term focus and short term trader in the forex currencies market.
However he been doing this job for almost more than 14 years and well expertise in what he was doing… Over the course of 8 years his stock investment had grown from 13 dollars a share to 96 dollars per share.
And forex Currencies market would be traded with him for multiple amount of pairs and seen not big growth over term because of no long term investment.
After the dividing the 96 dollars today value and initial value 13 dollars by taking a square root, he identified that his stock investment had grown 28.39 percentage each year over the past 8 years.
So to know how this value arrived deeply by looking in to the calculation of compounds growth any number of years.
Info 2: calculation for compound growth
Compound growth doesn’t represent any of the fixed specific things instead they are math that used to calculate the average components growth over time for any number of years.
However to find average annual or monthly compound growth rate, first divide future value with present value or current value with initial value.
Because whenever we need to calculate the future compound average growth rate for any industry take the future value by simply divide with current value.
Or to analyze the past record growth of industry, the current value became the future value and
Initial or beginning value for sum became the lower or present value.
For instance your expecting that if the industry future dollars is 12 and the current value is 8, then for the past record imagine that industry had 2 dollars before 10 years and 8 dollars became the future value for past compounds analysis.
The formula goes like this:
For Future calculation = FV/ CV
Or for past calculation = CV/ IV
For Math common calculation = EV/ BV
FV = future value
CV = current value
IV = initial value
EV = Ending value
BV = Beginning value
Once the Ending value divide with beginning value then take the square root for such value that gotten from division using any number of year.
Why square:
Square root helps the any value find constant multiple value in row, Demonstrate that from the division we got 1.67 and we need to now the average components growth rate for 6 years.
So taking square root for 1.67 leads to find what number helps to arrive at 64 in 6 times based on the number of years. So for √1.67 (6 square root) is 1.089× 1.089 × 1.089 × 1.089 × 1.089 × 1.089 × is 1.67, so the average compound growth is 1.089.
But 1.089 is not a growth rate indeed it’s compounds average number, to find the 1.089 growth rate we need to remove the dumb factor using 1.
Info 3: compound number vs growth rate
Moreover to find the Compound growth rate subtract the 1 with growth number as 1.089 it’s leads to
1.089 – 1 = 0.089. in decimal 0.01 is one percent and 0.05 is 5 percent.
So the growth rate of 0.089 is 8.9 percent rate anyway because as per the covert decimal percentage.
Formula is compound Annual growth rate or CAGR = BV/EV (1/n) – 1
N represent number of year. To make more sense about the compounds growth rate let’s seen into one brief example below.
Info 4: example for compounded growth rate
Whenever any of the trading takes places by any kind of individual which had some certain amount of period to grown and build the some level of return to any investing profits.
Which that growth are calculated based on the simple average growth rate and compound growth rate. Simple growth rate identify by dividing the sum total but the compound growth are identified by the sum total by dividing of taking the square root for whole calculation. So the simple average growth rate and compounds average growth rate are not same.