Question

For which of the following purposes is CAGR (Compounded Annual Growth Rate) not used?

• A. To calculate and communicate the average growth of a single investment
• B. To understand and analyze donations received by an NGO
• C. To demonstrate and compare the performance of investment advisors
• D. To compare the historical returns of stocks with a savings account

Answer 1

The Correct Option is B

The Compounded Annual Growth Rate (CAGR) is a financial metric used to calculate the annualized return of an investment over a period of time, assuming the profits are reinvested. It is commonly applied in the following scenarios:

Calculating the average growth of a single investment over multiple years (option 1).

Demonstrating and comparing the performance of investment advisors (option 3).

Comparing the historical returns of various financial instruments such as stocks or savings accounts (option 4).

However, understanding and analyzing donations received by a non-government organization (option 2) involves no compounding or financial growth metrics, making CAGR irrelevant for such purposes.