Time Value
The same growth rate produces different results depending on number of compounding periods.
Practice This ConceptUnderstanding Time Value
A 32% total growth over 4 years is NOT the same annual rate as 32% over 8 years. More years means a lower annual rate for the same total. EPSO tests whether candidates count years correctly.
Formula
$n = year_{end} - year_{start}$
Key Rules
- Number of years = end year minus start year
- 2018 to 2022 = 4 years, not 5
- More years + same total = lower annual rate
- Fewer years + same total = higher annual rate
Examples in Action
1
2022 - 2018
=
4 years
Number of compounding periods
2
32% over 4 years
=
7.2% CAGR
Shorter period = higher rate
3
32% over 8 years
=
3.5% CAGR
Longer period = lower rate
Common Errors
- Counting data points instead of intervals (off by one)
- Using wrong period length in CAGR formula
- Ignoring that same % over different periods gives different annual rates
Pro Tip
Most common CAGR mistake: 2018 to 2022 = 4 years (intervals), not 5 (data points). Always subtract.