NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds
An investor puts Rs 1,00,000 in a scheme which grows to Rs 1,21,000 after exactly two years with no interim payouts. What is the compounded annual growth rate (CAGR)?
The CAGR is 10%. The investment grew 1.21 times in two years, and the square root of 1.21 is 1.10. This gives an annual compounded growth of 10%, unlike the 21% absolute return over the full period.
- A10%Correct
- B10.5%
- C11%
- D21%
Explanation
(1,21,000 / 1,00,000) = 1.21, and the square root of 1.21 is 1.10, so CAGR is 10%. The 10.5% figure is the simple average of 21% over two years, and 21% is the absolute return over the whole period.
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