NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds
Mr. Arvind invests Rs 1,20,000 in a scheme at an NAV of Rs 24.00 per unit with no entry load. After two years the NAV is Rs 30.00 and he redeems all units. What is his compound annual growth rate (CAGR), approximately?
The CAGR is about 11.8%. The investment grows from Rs 1,20,000 to Rs 1,50,000, a multiple of 1.25 over two years. Taking the square root gives 1.118, so the compound annual return is roughly 11.8%, not the simple average of 12.5%.
- A11.8%Correct
- B25.0%
- C12.5%
- D15.0%
Explanation
Units = 120,000/24 = 5,000. Value = 5,000 x 30 = Rs 1,50,000, so growth is 1.25 times. CAGR = sqrt(1.25) - 1 = 1.1180 - 1 = 11.8%. Check: 1.118 squared = 1.25. The 12.5% option simply divides the 25% absolute return by 2.
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