NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Manager
Mr Iyer invested Rs 1,00,000 with a portfolio manager on 1 April. The portfolio value was Rs 1,20,000 after year 1 and Rs 1,02,000 after year 2 with no cash flows in between. What is the annualised (geometric) return over two years?
The annualised return is about 0.99% a year. The portfolio grew 20% in year one and fell 15% in year two, giving a two-year growth factor of 1.02. Taking the square root of 1.02 and subtracting one gives roughly 0.99%.
- A1.0%
- B2.0%
- C0.99%Correct
- D10.0%
Explanation
Growth factor year 1 = 1.20 and year 2 = 1.02/1.20 = 0.85. Two-year factor = 1.02. Annualised return = sqrt(1.02) - 1 = 1.0050 - 1, roughly 0.995%, so approximately 0.99% to 1.0%. Considering options, 1.0% is the arithmetic mean of 20% and -15% (2.5%) only if misread; the arithmetic mean would be 2.5%, not listed. The 2.0% is the total return, not annualised. The 10.0% is wrong.
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