NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds
Over three years, a fund's NAV grew from Rs 20 to Rs 26.62 with no dividends. What is the compounded annual growth rate (CAGR)?
The CAGR is 10%. The NAV multiplied by 1.331 over three years, and 1.10 cubed equals 1.331, so a steady 10% annual compound rate explains the growth. Simple averaging of the total gain would wrongly overstate it.
- A10%Correct
- B11%
- C12%
- D33.1%
Explanation
Growth multiple = 26.62 / 20 = 1.331, which equals 1.10^3 (1.1 x 1.1 = 1.21; 1.21 x 1.1 = 1.331). So CAGR is 10%. Dividing the total gain of 33.1% by 3 gives about 11%, which ignores compounding.
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