The present value of a perpetual income of ₹1,200 payable at the end of every six months is ₹40,000, then the value of r is, if money is worth r% compounded semi-annually :
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 6
The present value formula for a perpetuity,
$PV=\frac{A}{r}$
$⇒40,000=\frac{1,200}{r}$
$⇒r=\frac{1,200}{40,000}=0.03=3\%$
Since compounding is semi-annual,
$R=2×0.03=6\%$