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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers

A PMS portfolio manager's portfolio value rose from Rs 50,00,000 at the start of the year to Rs 56,00,000 at the end of the year, with no cash inflows or outflows during the year. What is the simple absolute return for the year?

The absolute return is 12%. The gain of Rs 6,00,000 is divided by the opening value of Rs 50,00,000, because return is always measured on the starting capital when there are no interim cash flows.

  1. A10%
  2. B12%Correct
  3. C14%
  4. D11.2%

Explanation

Absolute return = (56,00,000 - 50,00,000) / 50,00,000 = 6,00,000 / 50,00,000 = 12%. Choosing 10% comes from dividing the gain by the ending value incorrectly in a rounded way. Using the end value as the base gives 6/56 = 10.7%, which is also wrong. The start value is the correct base.

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