NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Manager
A PMS investor's portfolio grew from Rs 10,00,000 to Rs 12,10,000 over exactly two years with no inflows or outflows. What is the annualised (compound) return?
The annualised return is 10%. The portfolio grew by a factor of 1.21 over two years, and the square root of 1.21 is 1.10, so the compound annual rate is 10%. Simply halving the 21% total return would ignore compounding.
- A10.0%Correct
- B10.5%
- C21.0%
- D9.5%
Explanation
Total growth is 1.21. The annual compound rate is the square root of 1.21 minus 1, which is 1.10 - 1 = 10%. Dividing 21% by 2 gives 10.5%, which ignores compounding and is wrong. 21% is the cumulative, not annual, return.
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