Karan bought units of a mutual fund for Rs. 75,000. One year later, the market value of his units was Rs. 69,000. The rate of return on his investment for the year is
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → −8%
The rate of return compares the change in value with the original investment:
\( \displaystyle \text{Rate of return} = \frac{\text{Current value} - \text{Original value}}{\text{Original value}} \times 100 \)
The value has fallen, so the change is negative:
\(69000 - 75000 = -6000\)
\( \displaystyle \text{Rate of return} = \frac{-6000}{75000} \times 100 = -8\% \)
A negative rate of return means a loss of 8% of the money invested.
Why the other options are incorrect
Option (1) 8% — Incorrect. This has the right size but the wrong sign; the investment lost value, so the return is negative.
Option (2) −8.70% — Incorrect. This is −6000 ÷ 69000, which divides by the final value instead of the original investment.
Option (3) −6% — Incorrect. The loss is Rs. 6,000 in rupees; as a percentage of Rs. 75,000 it is 8%.