NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Time Value of Money
Mr. Nair invested Rs 1,00,000, which grew to Rs 1,33,100 after 3 years with no interim withdrawals. What is the compound annual growth rate (CAGR)?
The CAGR is 10%. Dividing the final value by the initial value gives 1.331, and its cube root is 1.10. Simple averaging of the 33.1% total gain gives about 11%, which ignores compounding and is therefore incorrect.
- A11.0%
- B10.0%Correct
- C9.0%
- D11.1%
Explanation
CAGR = (1,33,100/1,00,000)^(1/3) - 1 = (1.331)^(1/3) - 1 = 1.10 - 1 = 10%. Check: 1.1^3 = 1.331. The 11.0% option is wrong as it takes the simple average of 33.1%/3 = 11.03%.
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