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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape

Ms. Rao invested Rs 50,000 in a fund. After 2 years the value of her investment is Rs 60,500. Assuming no interim cash flows, what is her compounded annual growth rate (CAGR)?

The CAGR is 10% per year. The investment grew from Rs 50,000 to Rs 60,500, a factor of 1.21 over two years, and the square root of 1.21 is 1.10. The 21% figure is only the total absolute return, not the annualised one.

  1. A10%Correct
  2. B10.5%
  3. C20.5%
  4. D21%

Explanation

CAGR = (60,500/50,000)^(1/2) - 1 = (1.21)^(0.5) - 1 = 1.10 - 1 = 10%. Check: 50,000 x 1.1 x 1.1 = 60,500. Option D (21%) is the absolute return over two years, not annualised, and option B is a simple-average-style error.

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