CA Foundation · Quantitative Aptitude · Mathematics of Finance
A charitable society wants to fund an annual prize of ₹12,000 to be paid at the end of every year forever. If the fund earns 6% per annum, what is the amount required today?
The amount required is ₹2,00,000. The present value of a perpetuity paid at the end of each year equals the annual payment divided by the interest rate, so 12,000 divided by 0.06 gives ₹2,00,000.
- A₹72,000
- B₹2,00,000Correct
- C₹1,20,000
- D₹7,20,000
Explanation
Present value of an ordinary perpetuity = payment / rate = 12,000 / 0.06 = ₹2,00,000. Option ₹72,000 wrongly multiplies the payment by the rate (12,000 × 0.06 = 720 is scaled incorrectly), and ₹1,20,000 uses 10% instead of 6%.
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