NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Investment
An investment of Rs 1,00,000 grows to Rs 1,20,000 in year 1 and then falls to Rs 96,000 at the end of year 2. What is the compound annual growth rate (CAGR) over the two years, approximately?
The CAGR is about minus 2 percent per year. The portfolio ends at 96 percent of its starting value, and the square root of 0.96 is about 0.98. The average of +20 and -20 percent misleadingly shows zero, and -4 percent is the cumulative loss.
- A-2.04%Correct
- B-4.00%
- C-1.00%
- D+10.0%
Explanation
Total return = 96,000/1,00,000 = 0.96. CAGR = sqrt(0.96) - 1 = 0.9798 - 1 = -2.02%, i.e. about -2.0%. Year returns are +20% and -20%; their arithmetic mean is 0, and -4% is the total change, not annualised. The closest option is -2.04%.
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