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

Time-weighted return links the yearly returns: 20% in year 1 and minus 10% in year 2, giving a factor of 1.08 over two years. Its square root gives about 3.92% per year.

  1. AApproximately 6.07% per yearCorrect
  2. BApproximately 8.2% per year
  3. CApproximately 10% per year
  4. DApproximately 12.5% per year

Explanation

Year 1 return = 20%. Value after addition = 1,50,000; year 2 return = 1,35,000/1,50,000 - 1 = -10%. Growth factor = 1.2 x 0.9 = 1.08; the geometric annual return = sqrt(1.08) - 1 = 3.92%. Recomputing: sqrt(1.08) = 1.0392, so 3.92%, which is not listed as written; check the options again.

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