PRC-2 · Chapter 5 · Question 6 of 50
What is the present value of a financial perpetuity paying Rs. 5,000 at the end of each month, assuming an underlying interest rate of 12% per annum compounded monthly?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Rs. 500,000
Explanation
First, convert the annual rate to a monthly rate: i = 12% / 12 = 1% or 0.01 per month. Using the perpetuity formula PV = R / i, we get PV = 5,000 / 0.01 = Rs. 500,000.
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