NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance
An investor buys units at NAV Rs 25.00 and, 2 years later, the NAV is Rs 36.00 with no income distributed. What is the approximate compounded annual growth rate (CAGR)?
The CAGR is 20 percent. The NAV grows 1.44 times in two years, and the square root of 1.44 is 1.20, meaning the investment compounded at 20 percent each year. Simple averaging would give 22 percent, which is wrong.
- A22.00%
- B44.00%
- C20.00%Correct
- D18.00%
Explanation
Growth multiple = 36/25 = 1.44. CAGR = (1.44)^(1/2) - 1 = 1.20 - 1 = 20%. The 22% option is the simple average of 44% over 2 years, which ignores compounding. 44% is the total return, not annual.
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