An investor's initial investment of Rs. 1,00,000 in a growth mutual fund scheme increases in value to Rs. 1,44,000 over a holding period of exactly 2 years. What is the Compounded Annual Growth Rate (CAGR) realized on the investment?

[ A ]44.00 percent per annum

[ B ]20.00 percent per annum[ CORRECT ]

[ C ]22.00 percent per annum

[ D ]12.00 percent per annum

Takeaway

Option B is correct: 20.00 percent per annum

Derivation

CAGR is calculated using the compound interest formula: CAGR = (Later Value / Initial Value)^(1/n) - 1. Given: Later Value = Rs. 1,44,000; Initial Value = Rs. 1,00,000; n = 2 years. CAGR = (1,44,000 / 1,00,000)^(1/2) - 1 = (1.44)^(0.5) - 1 = 1.20 - 1 = 0.20 or 20.00% p.a. Verification: Year 1 = 1,00,000 * 1.20 = Rs. 1,20,000; Year 2 = 1,20,000 * 1.20 = Rs. 1,44,000. This question tests the mathematical calculation of multi-year compounded returns. The primary candidate error is calculating simple annualized return (44% / 2 = 22.00%) without accounting for annual compounding.

Why the others fail

A — 44.00 percent per annum

44.00% is the absolute simple cumulative return over the entire 2-year period, not the annualized compounded growth rate.

C — 22.00 percent per annum

22.00% is the simple arithmetic annual average (44% / 2) which incorrectly ignores the mathematical effect of annual compounding.

D — 12.00 percent per annum

12.00% is an arbitrary incorrect figure that underestimates the 20% annual compounding required to reach Rs. 1,44,000.