CA Foundation · Quantitative Aptitude · Mathematics of Finance
The present value of a perpetuity paying ₹9,000 at the end of every year, with the first payment one year from now, is ₹90,000. What is the rate of interest per annum?
The rate of interest is 10% per annum. For an ordinary perpetuity, present value equals the annual payment divided by the rate, so the rate is ₹9,000 divided by ₹90,000, which equals 0.10 or 10%.
- A9%
- B11.11%
- C12%
- D10%Correct
Explanation
PV = A/i, so i = A/PV = 9,000/90,000 = 0.10, i.e. 10%. Check: 9,000/0.10 = 90,000. The 11.11% option comes from inverting incorrectly (PV/A = 10 is not a percent rate; 1/9 is wrong).
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