Hi, This might seem a stupid question, but I am a little confused by the terms Annually compounded rate of return and effective annual rate. Would it be correct to state that these two concepts are actually the same thing? Also, would compounded annual growth rate (CAGR) then be the same theoretical concept as compounded annual return but applied to growth instead of returns? Thx
Effective annual rate or (EAR) is the effective interest rate in a year. Lets say EAR = 10%, this could mean that nominal interest rate is 9.57% compounded monthly or 9.65% compounded quarterly. And Yes annually compounded rate of return is the same as EAR, as for CAGR no its a completely different thing. http://en.wikipedia.org/wiki/Compound_annual_growth_rate