NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds
A fund's NAV rose from Rs 40 to Rs 50 over 2 years with no dividends. What is the approximate compounded annual growth rate (CAGR)?
The CAGR is nearly 11.8%. NAV grew by a factor of 1.25 over two years, so the annual compounded rate is the square root of 1.25 minus one, about 11.8%. Simple averaging gives 12.5%, which ignores compounding.
- ANearly 11.8%Correct
- B12.5%
- C25%
- DNearly 10.5%
Explanation
CAGR = (50/40)^(1/2) − 1 = 1.25^0.5 − 1 ≈ 1.118 − 1 = 11.8%. The 25% is the absolute return over two years, and 12.5% is the simple average per year, which ignores compounding and so overstates the CAGR.
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