NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
An investor puts Rs 50,000 in a scheme and the investment grows to Rs 60,500 after exactly 2 years with no interim payouts. What is the compounded annual growth rate (CAGR)?
The CAGR is 10 percent. The investment grew by a factor of 1.21 over two years, and the square root of 1.21 is 1.10, giving an annual compounded growth of 10 percent. The 21 percent figure is only the total absolute return.
- A10%Correct
- B10.5%
- C21%
- D9.5%
Explanation
Growth multiple = 60,500/50,000 = 1.21. The square root of 1.21 is 1.10, so CAGR is 10%. Option C is the absolute return over two years, not annualised; option B is not consistent with compounding.
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