NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds
An investor invests Rs 1,00,000 in a mutual fund scheme at NAV Rs 20.00. After 2 years the NAV is Rs 28.80, with no dividends paid. Ignoring load and taxes, what is the compound annual growth rate (CAGR)?
The CAGR is 20%. The NAV rises from 20 to 28.80, a growth factor of 1.44 over two years. The square root of 1.44 is 1.20, so the investment compounds at 20% a year. Dividing the 44% absolute return by two gives a wrong figure.
- A20%Correct
- B44%
- C22%
- D18.4%
Explanation
Units = 1,00,000/20 = 5,000; final value = 5,000 x 28.80 = Rs 1,44,000. Growth ratio = 1.44, whose square root is 1.20, so CAGR = 20%. The 22% option is the simple average of the 44% absolute return (44/2), which ignores compounding, hence 22% is wrong.
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