A startup company invested Rs. 5,00,000 in shares for 4 years. The value of the investment was Rs. 5,50,000 at the end of first year, Rs. 5,25,000 at the end of third year, and on maturity, the final value stood Rs. 6,25,000. The CAGR on the investment will be:- (Given: \((1.25)^{\frac{1}{4}} = 1.06\))
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 6%
The CAGR depends only on the beginning value, the ending value and the number of years; the values at the end of the first and third years are not needed.
\( \displaystyle \text{CAGR} = \left(\frac{\text{Final value}}{\text{Initial value}}\right)^{1/n} - 1 \)
\( \displaystyle = \left(\frac{6{,}25{,}000}{5{,}00{,}000}\right)^{1/4} - 1 \)
\( = (1.25)^{1/4} - 1 \)
\( = 1.06 - 1 = 0.06 = 6\% \)
CBSE Applied Mathematics (Class XII):
Compound Annual Growth Rate
