PRC-2 · Chapter 5 · Question 22 of 50
An elite endowment provides a constant payout of Rs. 3,000 at the end of every month forever. If the prevailing annual interest rate is 12% compounded monthly, what is the present value of this perpetuity?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Rs. 300,000
Explanation
The PV of a perpetuity is R / i. The monthly payout 'R' is 3,000. The annual rate of 12% translates to a monthly rate 'i' of 1% (0.01). PV = 3,000 / 0.01 = Rs. 300,000.
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