NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Manager
Ms Kavita, aged 45, invests Rs 50 lakh in a PMS. The portfolio is Rs 50 lakh at start and grows to Rs 56 lakh at end of year 1, then Rs 50.4 lakh at end of year 2, with no flows. What is the compound annual growth rate (CAGR) over two years, approximately?
The CAGR is about 0.4% per year, because the portfolio grew from Rs 50 lakh to Rs 50.4 lakh over two years, a factor of 1.008, whose square root is roughly 1.004.
- A0.4% per year
- B6% per year
- C0.2% per yearCorrect
- D12% per year
Explanation
Total growth = 50.4/50 = 1.008. CAGR = sqrt(1.008) - 1 = about 0.40% per year, which equals 0.4%. Check: 1.004 squared = 1.008016. The value 0.2% arises from halving by simple averaging incorrectly of 0.4%. Note that option 0 is the right figure.
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