NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation
A portfolio earned 20% in year 1 and lost 10% in year 2. What is its compound annual growth rate (CAGR) over the two years, closest to?
The CAGR is about 3.92%. Multiply the yearly growth factors 1.20 and 0.90 to get 1.08, then take the square root for two years, giving 1.0392. The simple average of 5% is wrong because it ignores compounding.
- A3.92%Correct
- B5.00%
- C8.00%
- D4.50%
Explanation
Growth factor = 1.20 × 0.90 = 1.08. CAGR = sqrt(1.08) − 1 = 1.0392 − 1 = 3.92%. The arithmetic mean of 5% overstates the return because it ignores compounding; 8% is the total two-year return.
Did you get it right without looking?
One question tells you little. A timed set on Portfolio Performance Measurement and Evaluation shows your real accuracy, how long you take and where you lose marks.
More Portfolio Performance Measurement and Evaluation questions
- Mr. Iyer's portfolio had a return of 12%, a beta of 1.2 and the risk-free rate was 5%. What is the Treynor ratio?
- Ms. Kapoor invested Rs 1,00,000 in a fund. At the end of year 1 it was worth Rs 1,20,000. She then added Rs 30,000 (so the value became Rs 1…
- Mr. Iyer invested Rs 1,00,000 in a fund. At the end of year 1 it was worth Rs 1,20,000. He then added Rs 30,000 at that point, and at the en…
- A portfolio returned 12% while its benchmark returned 9%. The tracking error (standard deviation of active returns) was 4%. What is the info…
- A portfolio earned 14% in a year when the risk-free rate was 6%. Its standard deviation was 16% and beta was 1.25. What is its Treynor ratio…
- A portfolio manager's portfolio returned 14% in a year. The risk-free rate was 6%, and the portfolio's standard deviation was 16%. What is t…