NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds
An investor puts Rs 1,00,000 in a fund and it grows to Rs 1,44,000 after exactly 2 years, with no interim payouts. What is the compounded annual growth rate (CAGR)?
The CAGR is 20%. The investment grew 1.44 times in two years, and the square root of 1.44 is 1.2, so it compounded at 20% a year. Dividing the 44% total by two, which gives 22%, ignores compounding.
- A22%
- B20%Correct
- C44%
- D18.5%
Explanation
CAGR = (1,44,000/1,00,000)^(1/2) − 1 = sqrt(1.44) − 1 = 1.2 − 1 = 20%. Checking: 1.2 × 1.2 = 1.44. Option 22% is the simple average of 44% over 2 years, which ignores compounding.
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