A startup company invested ₹5,00,000 in shares for 4 years. The value of the investment was ₹5,50,000 at the end of first year, ₹5,25,000 at the end of third year, and on maturity, the final value stood ₹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% **
Initial investment: ₹5,00,000
Final value after 4 years: ₹6,25,000
CAGR formula:
$\displaystyle \text{CAGR}=\left(\frac{\text{Final Value}}{\text{Initial Value}}\right)^{\frac{1}{n}}-1$
Substitute values:
$\displaystyle \text{CAGR}=\left(\frac{625000}{500000}\right)^{\frac{1}{4}} - 1$
$\displaystyle \text{CAGR}=(1.25)^{\frac14}-1$
Given $\displaystyle (1.25)^{\frac14}=1.06$
$\text{CAGR}=1.06 - 1=0.06$
CAGR = 6%