Ch.2 · Advantages and Limitations of Mutual Funds · hard
An investor invests ₹1,00,000 in a fund and receives ₹1,50,000 after 3 years. What is the approximate CAGR?
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EXPLANATION
CAGR = (End Value ÷ Start Value)^(1/n) − 1 = (1,50,000 ÷ 1,00,000)^(1/3) − 1 = (1.5)^(0.333) − 1 = 1.1447 − 1 = 14.47%. Absolute return is 50%, but CAGR annualises this over 3 years. This distinction is critical for comparing fund performance across different time periods.
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