Mathematics of FinancePYQ Sept 25Question 4122 of 507
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You are interested in an investment of ₹ 5,000 in a fund that promises ₹ 50 at the end of each year, forever. What is the annual interest rate on this investment?

Options

A1%
B2%
C1.5%
D2.5%
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Correct Answer

Option a1%

All Options:

  • A1%
  • B2%
  • C1.5%
  • D2.5%

Detailed Solution & Explanation

This investment represents a perpetuity because it pays a constant sum of ₹ 50 at the end of each year, forever.
The formula for the Present Value (PV\displaystyle PV) of a perpetuity is: PV=CrPV = \frac{C}{r} where: - PV=5,000\displaystyle PV = 5,000 (initial investment) - C=50\displaystyle C = 50 (annual payment) - r\displaystyle r is the annual interest rate
Substitute the values and solve for r\displaystyle r: 5,000=50r5,000 = \frac{50}{r} r=505,000=1100=0.01=1%r = \frac{50}{5,000} = \frac{1}{100} = 0.01 = 1\%
Hence, **Option A** is the correct answer.

About This Chapter: Mathematics of Finance

Paper

Paper 3: Quantitative Aptitude

Weightage

12-16 Marks

Key Topics

Simple & Compound Interest, Annuity, Perpetuity

The most important mathematical chapter in the entire syllabus. It covers Simple Interest (SI), Compound Interest (CI), Nominal vs Effective rates, Present and Future Value, Annuities (Ordinary and Due), Sinking Funds, and Perpetuities. The concepts learned here are applied heavily in CA Intermediate and Final.

View Official ICAI Syllabus

Exam Strategy Tip

Guaranteed 12-16 marks. Master your calculator! Learn the 'GT' and compound interest M+/M- tricks to solve annuity questions in 10 seconds without writing long formulas.

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