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:
Answer & explanation
Correct answer: option 2
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