CUET Preparation Today
Which of the following is correct about the compound annual growth rate? |
It is an average annualized return of an investment. It is calculated by taking the arithmetic mean of series of returns. It is a linear measure that does not account for the effects of compounding. It smoothens out the volatile nature of year by year growth/decay rates and provides more accurate results. |
It smoothens out the volatile nature of year by year growth/decay rates and provides more accurate results. |
The correct answer is Option (4) → It smoothens out the volatile nature of year by year growth/decay rates and provides more accurate results. CAGR is based on compounding and gives a single growth rate that links the beginning value to the ending value. It does not use arithmetic mean and it is not a linear measure. It reflects the effect of compounding and smoothens year-to-year fluctuations. The correct statement is: It smoothens out the volatile nature of year by year growth/decay rates and provides more accurate results. |
