Showing posts with the label Rate of return from fixed deposit and its CAGR

Correlation between rate of return from fixed deposit and its CAGR

Formula to calculate the compound interest from fixed deposit is: Final value = Principal × [1+(r/n)]^(n×t) Principal refers the invested amount. ‘n’ is compounding frequency, generally the value is 4 (quarterly for banks). ‘t’ is total period in years. ‘r’ is the annual interest rate.   Rate of return (in %) is calculated as: [(Final value – Initial value) / Initial value] × 100   Compound Annual Growth Rate (CAGR)is used to measure the rate of return in a given period from an investment. It is a measure of the average yearly growth rate. Formula to estimate CAGR is: CAGR (%) = {[(Final value/Principal)^(1/t)] - 1} × 100 t = Number of years (Period).   Find the return and CAGR, if $100 is invested in fixed deposit at 7% interest rate for a period of 5 years.   n = 4((quarterly basis) t = 5 years r = 7/100 = 0.07 Principal = 100 Maturity (Final) value is calculated as: = 100 × [1+(0.07/4)]^(4×5) = 141.47 So, the return after 5