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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. At the end of year 1 it was worth Rs 1,20,000. He then added Rs 30,000 at that point, and at the end of year 2 the total value was Rs 1,35,000. What is the time-weighted annual (geometric) return over the two years, closest to?

The time-weighted annual return is about 3.92%, from the square root of 1.20 times 0.90 minus one. The data given do not produce any listed option, so this question is flawed.

  1. A6.07%Correct
  2. B12.50%
  3. C6.25%
  4. D35.00%

Explanation

Year 1 return = 20%, so the factor is 1.20. Year 2 starts with 1,20,000 + 30,000 = 1,50,000 and ends at 1,35,000, a return of -10%, factor 0.90. Two-year growth = 1.20 x 0.90 = 1.08. The annualised figure is the square root of 1.08, minus 1, which is about 3.92%. Checking the options, none matches 3.92%, so recompute: sqrt(1.08) = 1.0392, so 3.92%. The listed key 6.07% is therefore incorrect for this data.

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