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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation

Mr. Iyer invested ₹1,00,000 in a mutual fund. It grew to ₹1,20,000 at the end of year 1 and fell to ₹1,08,000 at the end of year 2, with no additional flows. What is the compound annual growth rate (CAGR) over the two years, approximately?

The CAGR is approximately 4.0% a year. The investment grew from ₹1,00,000 to ₹1,08,000, a factor of 1.08 over two years, so CAGR is the square root of 1.08 minus 1, about 3.92%. The 10% arithmetic average of +20% and -10% overstates it.

  1. A4.0%
  2. B4.9%Correct
  3. C8.0%
  4. D10.0%

Explanation

Total growth = 1,08,000 / 1,00,000 = 1.08. CAGR = sqrt(1.08) - 1 = 1.0392 - 1, about 3.92%. Checking: 1.0392 squared is 1.08. So the correct value is about 4.0%. Option 8.0% is the total return, 10.0% is the arithmetic average of +20% and -10%, and 4.9% is not derived from the data.

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