NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance
A scheme's returns over 3 years are 10%, 20% and -10% in successive years. What is the cumulative return over the three years?
The cumulative return is 18.8%. Returns compound: 1.10 x 1.20 x 0.90 = 1.188. Adding the three percentages to get 20% is wrong because each year's return applies to the changed base.
- A18.80%
- B20.00%
- C13.20%Correct
- D6.67%
Explanation
Growth = 1.10 x 1.20 x 0.90 = 1.188, so the cumulative return is 18.8%. Check: 1.10 x 1.20 = 1.32; 1.32 x 0.90 = 1.188. Simply adding the returns gives 20%, which ignores compounding. The 13.2% and 18.8% options are distinct, so the correct choice is 18.80%.
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