CA Foundation · Quantitative Aptitude · Mathematics of Finance
A perpetuity of ₹6,000 per year, the first payment coming at the end of year 4 (payments thereafter at the end of each year forever), is to be valued at 10% per annum compound interest. Its present value today is closest to:
The present value is about ₹45,078. Value the perpetuity one year before its first payment, at the end of year 3, as 6,000 divided by 0.10, which is ₹60,000, then discount it three years at 10%: 60,000 divided by 1.331.
- A₹45,078Correct
- B₹60,000
- C₹49,587
- D₹54,545
Explanation
Value at end of year 3 of the perpetuity = 6,000/0.10 = ₹60,000. Discount 3 years: 60,000/(1.1)^3 = 60,000/1.331 = ₹45,078. ₹49,587 discounts only 2 years (60,000/1.21), and ₹60,000 ignores deferment.
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