Because many investments do not pay a consistent interest rate, but are rather the average of a fluctuating market, the compound annual growth rate (CAGR) assumes compound growth over time to provide a projected rate of return.
This formula is the projected rate of return on an asset or investment, even if it does not explicitly pay compounded interest. The CAGR is a form of the compound interest formula, but rearranged algebraically to solve for the interest rate using the beginning balance, ending balance and number of periods.