NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
Ravi invested Rs 50,000 in a security and, after exactly 2 years, it was worth Rs 72,000 with no interim income. What is the compounded annual growth rate (CAGR)?
The CAGR is 20%. The investment grew by a factor of 1.44 over two years, and the square root of 1.44 is 1.20, meaning an annual compounded growth of 20%. Simply halving the 44% absolute gain would wrongly ignore compounding.
- A20%Correct
- B22%
- C44%
- D10%
Explanation
Growth multiple = 72,000/50,000 = 1.44. The square root of 1.44 is 1.2, so CAGR = 20%. Choosing 22% comes from dividing the 44% absolute return by 2, which ignores compounding; 44% is the absolute return itself.
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