A perpetuity pays Rs. 12,000 at the end of every year. If the discount rate is 8%, what is its present value?
Correct answer: C. Rs. 150,000
- A. Rs. 96,000
- B. Rs. 120,000
- C. Rs. 150,000
- D. Rs. 160,000
Explanation
The present value of a level perpetuity is annual payment divided by the discount rate. Thus, Rs. 12,000 ÷ 0.08 equals Rs. 150,000; multiplying the payment by the rate gives the wrong relationship.
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