For which one of the following purposes is CAGR (Compounded Annual Growth Rate) not used?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → To understand and analyse the donations received by a non-government organisation
CAGR is the steady yearly rate at which an investment would grow from its beginning value to its ending value over n years, if the growth were compounded every year:
\( \displaystyle \text{CAGR} = \left(\frac{\text{ending value}}{\text{beginning value}}\right)^{\frac{1}{n}} - 1 \)
It is a measure of investment return. So it is used to state the average growth of a single investment (Option (1)), to compare how well investment advisors have done (Option (3)) and to compare the past returns of stocks with those of a savings account (Option (4)).
Donations received by a non-government organisation are separate gifts, not the value of an investment growing by compounding. Understanding and analysing them is not a use of CAGR.