A trust invites a deposit of lumpsum amount from individual so that annual scholarship of Rs.5000 is paid. Rate of interest is 5% per annum. If the scholarship is to start at the end of this year then the amount needed to deposit to Trust is:

Rs. 1,00,000

The correct answer is Option (2) → Rs. 1,00,000 **

The scholarship required each year: ₹5000.

Interest rate: 5% per annum.

This is a perpetuity (scholarship forever, starting end of this year).

Present value of a perpetuity:

$\text{Deposit}=\frac{\text{Annual payment}}{r} =\frac{5000}{0.05}=100000$

Required deposit = ₹1,00,000