NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds
A fund's NAV grows from Rs 25 to Rs 36 over exactly 2 years with no dividends. What is the approximate annualised compounded return (CAGR)?
The CAGR is 20%. The NAV multiplies by 1.44 over two years, and since 1.2 squared equals 1.44, the compounded annual growth rate is 20%. Simply halving the 44% absolute return would ignore compounding and overstate the annual figure.
- A20%Correct
- B22%
- C44%
- D17.5%
Explanation
Growth multiple = 36/25 = 1.44. The square root of 1.44 is 1.2, so CAGR = 20%. Dividing the 44% absolute return by 2 gives 22%, which ignores compounding. 44% is the absolute return, not annualised.
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