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

Mr. Iyer invested Rs 1,00,000 in a fund. After one year the value was Rs 1,20,000, and he then added Rs 40,000 at that point. After a second year the value of his holding was Rs 1,76,000. What is the annualised time-weighted return over the two years?

Time-weighted return links the sub-period returns, ignoring cash flow timing. Year one gave 20% and year two gave 10%, so the two-year growth is 1.32 times. Annualised, this is the square root of 1.32 minus 1, roughly 14.9%.

  1. AApproximately 17.6%
  2. BApproximately 20.0%Correct
  3. CApproximately 22.0%
  4. DApproximately 14.6%

Explanation

Year 1 return = 20%. Value after addition = 1,20,000 + 40,000 = 1,60,000. Year 2 return = 1,76,000/1,60,000 - 1 = 10%. Linked return = 1.20 x 1.10 = 1.32, so annualised = sqrt(1.32) - 1, about 14.9%. This does not match any option exactly, so the key is not reliable.

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