Which of the following statements are correct about the compound annual growth rate (CAGR)?
(A) CAGR is calculated by using the final and beginning value of an investment.
(B) CAGR is compounded annual return of an investment.
(C) CAGR describes the effect of compounding.
(D) CAGR can be used to demonstrate and compare the performance of investment advisors.
Choose the correct answer from the options given below:
Which of the following statements are correct about the compound annual growth rate (CAGR)?
(A) CAGR is calculated by using the final and beginning value of an investment.
(B) CAGR is compounded annual return of an investment.
(C) CAGR describes the effect of compounding.
(D) CAGR can be used to demonstrate and compare the performance of investment advisors.
Choose the correct answer from the options given below:
Solution
CAGR is computed from only the beginning and ending values over the period, so (A) holds; it expresses the constant compounded annual return, covering (B) and (C).
Because it standardises returns over equal periods, it is also used to compare the performance of investments and advisors, so (D) holds. All four are correct.
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