NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds
Meera Iyer invested ₹1,00,000 in a mutual fund scheme that grew to ₹1,44,000 over exactly 2 years with no interim cash flows. What is the compounded annual growth rate (CAGR) of her investment?
The CAGR is 20 percent. The investment grew by a factor of 1.44 over two years, and the square root of 1.44 is 1.2, so it compounded at 20 percent a year. Simply halving the 44 percent absolute return would give 22 percent, which ignores compounding.
- A20%Correct
- B22%
- C18%
- D44%
Explanation
CAGR = (1,44,000/1,00,000)^(1/2) - 1 = sqrt(1.44) - 1 = 1.2 - 1 = 20%. Check: 1,00,000 x 1.2 x 1.2 = 1,44,000. Option 22% is a misstep of dividing 44% by 2, which gives 22% and ignores compounding. Option 44% is the absolute return.
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