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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds

An investor bought units at a NAV of Rs 50 and sold them exactly two years later at Rs 72. Ignoring taxes and expenses, what is the approximate compounded annual growth rate (CAGR)?

The CAGR is 20%. The NAV grew by a factor of 1.44 over two years, and the square root of 1.44 is 1.20, so the annual compounded growth rate is 20%. Simple averaging would wrongly give 22%.

  1. A22%Correct
  2. B44%
  3. C20%
  4. D10.5%

Explanation

Growth multiple = 72/50 = 1.44, and the square root of 1.44 is 1.2, so CAGR = 20%. Wait, check: 1.2 - 1 = 0.20, so the correct figure is 20%. The 44% figure is the total absolute return, not annualised, and 22% is a simple annual average of 44%.

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