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Ch.10 · Risk Measures and Ratios · hard

An investor puts ₹1 lakh in a mutual fund and after 3 years it grows to ₹1.33 lakh. What is the approximate CAGR?

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EXPLANATION

CAGR = (1,33,000 / 1,00,000)^(1/3) - 1 = (1.33)^(0.333) - 1 ≈ 1.1003 - 1 = 10.03%. The absolute return is 33% over 3 years, but the CAGR of approximately 10% better represents the annualised growth. Note: 33% ÷ 3 = 11% is the simple average, not CAGR.

A.11%

B.10%

C.10.03% [✓ Correct]

D.33%

EXPLANATION

CAGR = (1,33,000 / 1,00,000)^(1/3) - 1 = (1.33)^(0.333) - 1 ≈ 1.1003 - 1 = 10.03%. The absolute return is 33% over 3 years, but the CAGR of approximately 10% better represents the annualised growth. Note: 33% ÷ 3 = 11% is the simple average, not CAGR.

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