CA Foundation · Quantitative Aptitude · Mathematics of Finance
A perpetuity pays ₹4,000 at the end of every year forever. Its present value is ₹50,000. What is the rate of interest per annum?
The rate is 8% per annum. For an ordinary perpetuity the present value equals the payment divided by the rate, so the rate equals payment divided by present value: 4,000 divided by 50,000 equals 0.08. Interest of 8% on 50,000 gives exactly 4,000 each year.
- A12.5%
- B8%Correct
- C10%
- D6.25%
Explanation
For a perpetuity, PV = A / i, so i = A / PV = 4,000 / 50,000 = 0.08 = 8%. Check: 50,000 × 0.08 = 4,000. The figure 12.5% comes from inverting the ratio (50,000/4,000 = 12.5), which is wrong.
Did you get it right without looking?
One question tells you little. A timed set on Mathematics of Finance shows your real accuracy, how long you take and where you lose marks.
More Mathematics of Finance questions
- Mrs. Nair deposits ₹8,000 at the end of every year in a scheme paying 10% per annum compounded annually. The scheme matures when the accumul…
- A delivery van costing ₹8,00,000 is depreciated at 10% per annum on the written-down value (reducing balance) method. What is its book value…
- A charitable society wants to fund an annual prize of ₹12,000 to be paid at the end of every year forever, starting one year from now. If th…
- A sum of money lent at 6% per annum simple interest amounts to ₹6,200 at the end of 4 years. What is the principal?
- Verma Enterprises takes a loan of ₹21,000 at 10% per annum compound interest, to be repaid in two equal installments paid at the end of year…
- 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, w…