Difference between Geometric Mean and CAGR?

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revenant

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When given asset value, we are able to use either but when given the return rates, we can only use Geometric Mean?
Thanks.
 
I’m not sure if I understand your question completely. CAGR and Geometric Mean are the same thing.
 
Chuckrox8 Wrote:
——————————————————-
> I’m not sure if I understand your question
> completely. CAGR and Geometric Mean are the same
> thing.
Oh I’m asking this because their formula looks different.
Anyway, let me rephrase my question.
When computing the growth rate given the returns over the few years, I suppose we use Geometric Mean to calculate?
When computing the growth rate given the beginning and ending value, we use CAGR to calculate?
If not, how do you calculate returns using CAGR since its formula is “(Ending / Beginning) ^ (1/years) -1” ?
Thanks.
 
revenant Wrote:
——————————————————-
>
> When computing the growth rate given the returns
> over the few years, I suppose we use Geometric
> Mean to calculate?
>
> When computing the growth rate given the beginning
> and ending value, we use CAGR to calculate?
>
> If not, how do you calculate returns using CAGR
> since its formula is “(Ending / Beginning) ^
> (1/years) -1” ?
>
> Thanks.
Anyone?
 
these methods should result in the same figure, so i’d say that depending upon the input provided, make the choice from that.
 
tsx11 Wrote:
——————————————————-
> these methods should result in the same figure, so
> i’d say that depending upon the input provided,
> make the choice from that.
I can’t see that happening actually.
What if a stock’s value for the last 3 years are $10, $20, then $15? We don’t just use (15-10)^1/3 -1 do we?
Just trying to make things clearer.
Thanks.
 
YR1-2
growth rate: (20-10)/10 = 100%
Yr 2-3
growth rate: (15-20)/20 = -25%
CAGR: (2*.75) ^ 1/2 = 1.2247 ==> 22.47%
which is the same as (15-10)/10 ^ 1/2
remember that you have to look at the intervenining number of periods – which is 2 and not 3 as you have used above.
 
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