NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
Ramesh invested Rs 80,000 in an asset and its value rose to Rs 96,800 at the end of 2 years, with no interim income. What is the approximate compound annual growth rate (CAGR)?
The CAGR is 10 per cent. The investment grew by a factor of 1.21 over two years, and the square root of 1.21 is 1.10. Compounding Rs 80,000 at 10 per cent for two years gives Rs 96,800, confirming the figure; 21 per cent is only the absolute return.
- A10.0%Correct
- B20.0%
- C21.0%
- D9.5%
Explanation
Growth multiple = 96,800/80,000 = 1.21. CAGR = (1.21)^(1/2) - 1 = 1.10 - 1 = 10%. The 21% option is the absolute return over two years, and 20% is a wrong simple-average-style approach. Checking: 80,000 x 1.1 x 1.1 = 96,800.
Did you get it right without looking?
One question tells you little. A timed set on Investment Landscape shows your real accuracy, how long you take and where you lose marks.
More Investment Landscape questions
- Which of the following is a characteristic of an investment in gold held in physical form, compared with a Gold ETF?
- Which of the following asset classes is generally considered to offer the highest liquidity to an investor?
- Which of the following asset classes is generally considered to offer the highest liquidity for an individual investor?
- Which of the following asset classes is generally considered to offer the highest potential for long-term inflation-beating returns, along w…
- Mr. Iyer invested Rs 50,000 in a bank deposit that paid 8% simple interest per annum. The inflation rate during the year was 6%. Using the a…
- An investment of Rs 1,00,000 grows to Rs 1,44,000 over exactly two years with no interim cash flows. What is the compounded annual growth ra…