If the cash equivalent of a perpetuity of ₹ 1200 payable at the end of each quarter is ₹ 96000, then the rate of interest convertible quarterly:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 5%
$\text{Present value of perpetuity} = \frac{\text{Payment}}{i}$
$96000 = \frac{1200}{i}$
$i = \frac{1200}{96000} = \frac{1}{80}$
$\text{Quarterly rate} = 0.0125 = 1.25\%$
$\text{Nominal annual rate (convertible quarterly)} = 4 \times 1.25\% = 5\%$
The rate of interest is $5\%$ per annum (convertible quarterly).