NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
Meera invested Rs 40,000 which grew to Rs 48,400 at the end of two years with annual compounding. What is the annual compounded rate of return?
The annual compounded rate is 10%. The investment grew by a factor of 1.21 over two years, and the square root of 1.21 is 1.10, meaning 10% per year. The 21% figure is the cumulative gain over two years rather than the yearly rate.
- A10%Correct
- B21%
- C20%
- D11%
Explanation
Growth factor = 48,400 / 40,000 = 1.21. The square root of 1.21 is 1.10, so the annual rate is 10%. Check: 40,000 x 1.1 x 1.1 = 48,400. The 21% option is the total two-year gain, not annual.
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