CAGR can also be used to demonstrate the virtues of investing earlier rather than later in life. If they’re prepared to take on additional risk and expect a CAGR of 5%, then they would need to save $3,975 annually. A couple who would like to save $50,000 over 10 years toward a down payment on a condo would need to save $4,165 per year if they assume an annual return (CAGR) of 4% on their savings. CAGR can be used to estimate how much needs to be stowed away to save for a specific objective. In contrast, a risk-tolerant investor who expects an annual rate of return of 6% on their portfolio would see $100,000 grow to $320,714 after 20 years. Their present $100,000 portfolio would, therefore, grow to $180,611 after 20 years. 
A risk-averse investor is happy with a modest 3% annual rate of return on their portfolio.
Interest payable at the end of each year is shown in the table below. While the total interest payable over the three-year period of this loan is $1,576.25, unlike simple interest, the interest amount is not the same for all three years because compound interest also takes into consideration the accumulated interest of previous periods. The formula for calculating compound interest in a year is:
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