The present value of a sequence of payments of Rs. 2000 made at the end of every 6 months and continuing forever, if money is worth 8% per annum compounded semi-annually, is:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs 50000
Payment each period = 2000
Interest = 8% per annum compounded semi-annually
Semi-annual rate:
$i = \frac{8\%}{2} = 4\% = 0.04$
This is a perpetuity (payments forever).
Present value of perpetuity:
$PV = \frac{\text{Payment}}{i}$
$= \frac{2000}{0.04}$
$= 50{,}000$
Present value = ₹50,000