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Task 19

The document discusses several case studies related to calculating compounded rates of return on investments in mutual funds, stocks, real estate, and bank deposits. It provides the formulas and steps to calculate compounded annual growth rates (CAGR) given the present and future values, time periods, and cash flows like dividends, interest, and rent. For example, one case shows that for an investment with a present value of Rs. 10.50 that grew to Rs. 12.25 over 3 years, the compounded annual return was 5.27%. The document demonstrates how to handle various scenarios for calculating total returns on investments.

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Medha Singh
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196 views3 pages

Task 19

The document discusses several case studies related to calculating compounded rates of return on investments in mutual funds, stocks, real estate, and bank deposits. It provides the formulas and steps to calculate compounded annual growth rates (CAGR) given the present and future values, time periods, and cash flows like dividends, interest, and rent. For example, one case shows that for an investment with a present value of Rs. 10.50 that grew to Rs. 12.25 over 3 years, the compounded annual return was 5.27%. The document demonstrates how to handle various scenarios for calculating total returns on investments.

Uploaded by

Medha Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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RETURN AND CONCEPT OF COMPOUNDING (CASE STUDIES)

Q. Assume that Rs. 10.50 was invested in a mutual fund and redeemed for Rs. 12.25 at the end
of 3 years. What is the compounded rate of return?

Ans: Future value = Rs 12.25

Present value = Rs 10.50

No. of years = 3

Compounded rate of return/Compounded annual growth rate (CAGR) = ((FV/PV) ^ (1/n))-1=

= ((12.25/10.25) ^ (1/3))-1

= 5.27%

Q. An investor purchased mutual fund units at an NAV of Rs.11. After 450 days, she redeemed
it at Rs.13.50. What is her compounded rate of return?

Ans: Future value = Rs 13.50

Present value = Rs 11

No of days = 450

CAGR = ((FV/PV) ^ (365/n))-1

= ((13.50/11) ^ (365/450))-1

= 18.07%

Q. An investor buys an equity share on 31 Jul 2012 for Rs.150. He receives a dividend of Rs.5
on 31 Oct 2012; Rs.6 on 31 Oct 2013; Rs.4 on 31 Oct 2014. He sells the share on 15 Jan 2015
for Rs.165. What is the CAGR of his investment?

Ans: Future value = Rs 165

Present value = Rs 150

No of years = 3

CAGR = ((FV/PV) ^ (1/n))-1


= ((165/150) ^ (1/3))-1

= 3.23%

Q. Ajay bought an equity share whose face value is Rs.10 for Rs.250 and earned50% dividend in
year 1, 60% dividend in year 2, and sold it off after three years for Rs.300. What is the return on
his investment?

Ans: Return on investment = (300/250) ^ (1/3)

= 6.26%.

Q. Arun, An investor bought a house for Rs.10 lakh. He earned a monthly rental income of
Rs.3000 for 2 years. He then sold off the house for Rs.12 lakh. What is his total return?

Ans: Purchase price = 1000000

Sale price of the house = 1200000

Rental Income = 3000*24 =72000

Therefore,

Total return for Arun = sale price+ rental income – Purchase price

= 1200000 + 72000- 1000000

=2, 72,000

Q. Ram, an investor invests Rs. 10,000 in a 6-month bank deposit that gives 8% p.a. What is the
amount of interest earned?

Ans: Total amount= Principle (1+r/2) ^16

= 10000*(1+0.04) ^ 16

= 18729

Interest Earned= Principle- total amount

=18729-10000

= 8729
Q. Mrs. Kapoor has been accumulating mutual funds over the past two years. She decides to sell
her holdings on January 31, 2017, on which date the value of her investments is as shown below.
What is the annualized rate of return on her investments?

a. Purchase date - Dec 10 2014 Purchase cost 10,000 Market value as on Jan 31, 2017 is 13000

b. Purchase date - May 15 2015 Purchase cost 15,000 Market value as on Jan 31, 2017 is 16000

Ans: a. Annualized return = ((13000 – 10000)/ 10000) * (1/3)

= 10%

b. Annualized return = ((16000-15000)/15000) * (12/19)

= 4.21%

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