A person invested ₹20000 in a mutual fund in year 2018. The value of the mutual fund increased to ₹32000 in year 2023. The compound annual growth rate of his investment is: [Given that $(1.6)^{1/5}= 1.098$]
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 9.8%
Initial value $=20000$
Final value $=32000$
Number of years $=5$
Formula for CAGR
$\text{CAGR}=\left(\frac{\text{Final value}}{\text{Initial value}}\right)^{\frac{1}{n}}-1$
$=\left(\frac{32000}{20000}\right)^{\frac{1}{5}}-1$
$=(1.6)^{\frac{1}{5}}-1$
Given $(1.6)^{\frac{1}{5}}=1.098$
$\text{CAGR}=1.098-1=0.098$
$=9.8\%$
The compound annual growth rate is $9.8\%$.