NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation
Ms. Rao invested Rs 1,00,000 in a fund. At the end of year 1 it was worth Rs 1,20,000 and she then withdrew nothing. In year 2 it fell to Rs 1,08,000. What is her compound annual growth rate (CAGR) over the two years, approximately?
The CAGR is approximately 3.92% per year. The investment grew from Rs 1,00,000 to Rs 1,08,000, a multiple of 1.08, and the square root of 1.08 minus one gives about 3.92% compounded annually.
- A3.92%Correct
- B4.00%
- C8.00%
- D20.00%
Explanation
Growth multiple = 1,08,000/1,00,000 = 1.08. CAGR = sqrt(1.08) - 1 = 1.0392 - 1 = 3.92%. The simple average of +20% and -10% is 5%, not shown; 4.00% is 8%/2 as a simple average and ignores compounding. 8.00% is total return. 20% is year 1 only.
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