Ch.10 · Risk Measures and Ratios · hard
What is the 'annualised return' calculation for a fund that returned 15% over 6 months?
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EXPLANATION
For periods less than 1 year, annualised return is calculated using compounding: Annualised Return = (1 + 0.15)^(12/6) - 1 = (1.15)^2 - 1 = 1.3225 - 1 = 32.25%. Simply doubling the 6-month return (30%) is incorrect as it ignores compounding. SEBI discourages annualising returns for periods less than 1 year as it can be misleading.
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