If the money is worth 8% per annum compounded semi-annually, then the present value of a sequence of payments of ₹1,000 made at the end of every 6 months and continuing forever, is:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → ₹25,000
Rate of interest per half year
$=\frac{8}{2}=4\%=\frac{4}{100}$
Each payment $=1000$
For a perpetuity, present value is
$PV=\frac{R}{i}$
Here $R=1000$ and $i=\frac{4}{100}$
$PV=\frac{1000}{\frac{4}{100}}$
$=1000\times\frac{100}{4}$
$=25000$
Present value $=25000$