Calculate Average Growth Rate in Excel

Average growth rate is a financial term used to describe a method of projecting the rate of return on a given investment over a period of time. By factoring the present and future value of a particular investment in relationship to the periods per year, you can calculate an annualized yield rate, which can be useful in the development of an investment strategy. An average growth rate calculator can be created in a Microsoft Excel spreadsheet that can accurately determine the annualized rate of return of any given investment. This article provides step-by-step instructions on how to use Excel to accurately calculate the average growth rate of an investment.

Steps

  1. Enter and format the column heading for the average growth rate calculator. Type "Future Value" into cell B1. With cell B1 still selected, click the "Wrap text" button on the formatting tool bar. Select the "Formatting brush" from the formatting toolbar and drag the formatting brush from cell C1 through cell F1.
  2. Format the cell borders for the average growth rate calculator. Click in cell B1, and drag to select cells B1 through F1. On the formatting toolbar, click the arrow on the Borders button and select "Thick bottom borders." Click and drag to select cells B2 through F2. On the formatting toolbar, click the arrow on the Borders button and select "Outside borders" from the menu options. The cells in the average growth rate calculator will now be outlined in black.
  3. Set the number formatting for the average growth rate calculator. Select Format Cells under Format.
    • Select cells B2 and C2, and select the currency ($) option. Any value entered in cells B2 or C2 will now display as a dollar amount.
    • Click in cell F2 and select the percentage (%) option. Any value entered in cell F2 will now read as a percentage. The number formatting for the average growth rate calculator have been set.

Enter the Formula to Calculate the Annualized Yield Rate of an Investment in Excel

  1. Enter the formula for calculating the annualized yield rate. Type the following formula into cell F2: =((B2/C2)^(1/D2))^E2-1. The average growth rate of an investment will now appear in cell F2 whenever values are entered into cells B2 through E2.

Test the Average Growth Rate Calculator and Interpret the Result

  1. Enter the following values into cells B2 through E2 to test the accuracy of the average growth rate calculator. Type "100,000" in cell B2, "500" in cell C2, "120" in cell D2 and "4" in cell E2. If the resulting figure in cell F2 is "19.32%," the calculator is functioning properly. In other words, if an investment of $500 dollars yields $10,000, over a period of 10 years (120 months), where the interest is paid quarterly, the average growth rate is 19.32%.



Things You'll Need

  • Computer with Microsoft Excel '97 more recent Excel releases

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Sources and Citations

  • http://support.microsoft.com/kb/123198
  • Go with Microsoft, Excel 2007-Comprehensive First Edition, Shelly Gaskin and Karen Jolly. Published in 2008, Pearson Education Inc., Upper Saddle River, NJ.
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