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June 30, 2026
9 Free Financial Modeling Lessons
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yr 0: 1000
yr1: 1000*1.1=1100
yr2: 1100*1.4=1540
yr3: 1540*2=3080
CAGR=(final/begin)^(1/n)-1=(3080/1000)^(1/3)-1=45.4%
Feel free to correct me if there's anything wrong here.
Thanks, but now you are assuming that the entire 1100 is reinvested and that 1540 is reinvested. per the example above, 600 is distributed in y1, 650 in y2 and 100 in y3 and therefore the dollar gain is only 100 (10% of 1000), 200 (40% of 500) and 50 (100% of 50%). Look at Howard Marks' "you cant eat IRR" memo on p. 2
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