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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Investment

Meera invested Rs 80,000 in a unit that paid no income and sold it after exactly 3 years for Rs 1,06,480. What was her compound annual growth rate (CAGR)?

The CAGR is 10%. The investment grew from Rs 80,000 to Rs 1,06,480, a multiple of 1.331, which equals 1.10 raised to the power 3. Simple averaging of the 33.1% total gain would give about 11%, which ignores compounding.

  1. A10%Correct
  2. B8.87%
  3. C11%
  4. D9%

Explanation

Growth multiple = 1,06,480/80,000 = 1.331, which is 1.1 cubed (1.1 x 1.1 = 1.21; 1.21 x 1.1 = 1.331). So CAGR = 10%. The absolute return is 33.1%, and dividing by 3 gives 11.03%, which is the simple average and wrongly ignores compounding.

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