How is the compound interest rate of growth calculated?

The compound interest rate of growth is calculated using the formula that expresses the relationship between the future value (FV) and the present value (PV) of an investment over a certain number of periods (n). The formula states that the growth rate (r) can be found by taking the future value divided by the present value, raising that result to the power of one divided by the number of periods, and then subtracting one. This formulation effectively captures the essence of compound interest, which reflects the idea that interest is calculated on both the initial principal and the accumulated interest from previous periods.

This formula is particularly important in financial planning and investment analysis, as it allows investors to estimate how their investments will grow over time due to compounding interest. Understanding this calculation is essential for wealth management professionals when advising clients on investment strategies and projections.