CA Foundation · Quantitative Aptitude · Mathematics of Finance
The present value of a perpetuity of ₹2,500 payable at the end of every year is ₹31,250. The rate of interest per annum is:
The rate of interest is 8% per annum. For an ordinary perpetuity the present value equals the payment divided by the rate, so the rate equals 2,500 divided by 31,250, which is 0.08 or 8%.
- A10%
- B12.5%
- C6.25%
- D8%Correct
Explanation
For an ordinary perpetuity, PV = P/i, so i = P/PV = 2,500/31,250 = 0.08, i.e. 8%. Check: 2,500/0.08 = 31,250. A rate of 12.5% would result from inverting wrongly (31,250/2,500 = 12.5).
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