Chartered Investment Manager (CIM) Practice Exam · Question
A private equity fund just exited an investment in a mid-sized Canadian manufacturing company for $250 million. The fund's initial investment in the company was $75 million five years ago. Assuming no additional capital injections or withdrawals, what is the approximate Compound Annual Growth Rate (CAGR) for this investment?
CAGR = (Ending Value / Beginning Value)^(1/Number of Years) - 1. So, (250/75)^(1/5) - 1 = (3.333)^(0.2) - 1 = 1.3159 - 1 = 31.59%, approximately 31.6%.
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Question: A private equity fund just exited an investment in a mid-sized Canadian manufacturing company for $250 million. The fund's initial investment in the company was $75 million five years ago. Assuming no additional capital injections or withdrawals, what is the approximate Compound Annual Growth Rate (CAGR) for this investment?
Answer options:
- 27.1% ✅ 31.6%
- 37.7%
- 41.3%
Correct answer: 31.6%
Explanation: CAGR = (Ending Value / Beginning Value)^(1/Number of Years) - 1. So, (250/75)^(1/5) - 1 = (3.333)^(0.2) - 1 = 1.3159 - 1 = 31.59%, approximately 31.6%.
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