• Originally published: 08/03/2019 20:05
Publication number: ELQ-46133-1
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# Average Annual Growth Rate (AAGR) Versus Compound Annual Growth Rate (CAGR) Excel Calculator

This Excel calculator is just to show the effects of compounding.

Description
A very easy to use calculator to show the Compound Annual Growth Rate (CAGR) for a periodic investment which is obviously going to reflect the true rate of return as opposed to the Average Annual Growth Rate (AAGR).

Please enable macro while opening the file, so the "Refresh" button can work.

The user needs to input Duration (in Years), Desired Average Return (%), Initial Investment, and Monthly Contribution in the cells (in row#5) and sheet will calculate and display various (infinite combinations of for each Refresh) possible values of % Gain and Cumulative amount after each year. For every Refresh values of % Gain for each year will randomly change and so the Cumulative Amount also, but the AAGR will be same as set by the user in the Desired Average Return (%) field. For each random combination the CAGR value will be calculated as per the Final Cumulative Amount, which clearly shows the difference in CAGR and AAGR.

This Excel tool may be used for educational/demo purpose.

AAGR is a standard for measuring average return of investment over several time periods. AAGR is a linear method that does not account for the effects of compounding, thus it can be misleading sometimes because it does not accurately depict changing financials. In some cases, it can overestimate the growth of an investment. So it may be more useful to calculate the compound annual growth rate (CAGR), which diminishes the effect of volatility of periodic returns.

This Best Practice includes
1 Excel Workbook

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