Mathematics for FinanceMTP Sep 24 Series IIQuestion 1597 of 512
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The value of the present value of a sequence of payments of Rs 80\displaystyle \text{Rs }80 made at the end of each 6\displaystyle 6 months and continuity forever, if money is worth 4%\displaystyle 4\% compounded semi-annually is

Options

ARs 4,000\displaystyle \text{Rs }4,000
BRs 5,000\displaystyle \text{Rs }5,000
CRs 3,000\displaystyle \text{Rs }3,000
DNone of these
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Correct Answer

✅ Option a — Rs 4,000\displaystyle \text{Rs }4,000

All Options:

  • ARs 4,000\displaystyle \text{Rs }4,000
  • BRs 5,000\displaystyle \text{Rs }5,000
  • CRs 3,000\displaystyle \text{Rs }3,000
  • DNone of these

Detailed Solution & Explanation

The present value (PV\displaystyle PV) of a perpetuity paid semi-annually is: PV=AiPV = \frac{A}{i} Given: * Semi-annual payment (A\displaystyle A) = 80\displaystyle 80 * Nominal interest rate = 4%\displaystyle 4\% p.a. compounded semi-annually, so periodic semi-annual interest rate i=4%2=2%=0.02\displaystyle i = \frac{4\%}{2} = 2\% = 0.02 Substituting the values: PV=800.02=4,000PV = \frac{80}{0.02} = 4,000 Hence, **Option A** is the correct answer.

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