Average Annual Growth Rate - AAGR

What Does Average Annual Growth Rate - AAGR Mean?

The average increase in the value of an individual investment or portfolio over the period of a year. It is calculated by taking the arithmetic mean of the growth rate over two annual periods. The average annual growth rate can be calculated for any investment, but will not include any measure of the investment's overall risk, as measured by its price volatility.

           AGR                  - Annual Growth Rate

        n                       - N.O of year (For AGGR calculation)

        AAGR                 - Average Annual Growth Rate

Explanation:  Average Annual Growth Rate – AAGR

Just as the name says, it is the average growth rate. For example, if your portfolio grows 10% one year and 20% the next, your AAGR would be 15%. To this end, fluctuations in the portfolio's rate of return between the beginning of the first year, and the end of the year are not included in the calculations, which may lead to some measurement error.

To reduce any possible measurement error, an analyst can simply take the average price at the beginning and end of the two measurement periods, and use those average prices to determine each year's return, and then the AAGR.

Example:

Consider a portfolio, for which AAGR should calculate,

Following table shows the Annual Growth rate of the given Portfolio:

DOC	PV in DOC	AGR
01-Jan-2008	` 1000.00	` 100.00
31-Dec-2008	` 1100.00
01-Jan-2009	` 1100.00	` 150.00
31-Dec-2009	` 1250.00
01-Jan-2010	` 1250.00	` 25.00
31-dec-2010	` 1275.00

In the above table,

     DOC              - Date of Calculation,

     PV in DOC      - Portfolio Value in Date of Calculation

     AGR              - Annual Growth Rate

 

So,

AAGR for given portfolio in between 2008 and 2010 is,

=(`100+`150+`75)/3

=`275/3

=`91.66