Question

Assuming that the discount rate is 7% per

annum, how much would you pay to receive

Rs.50, growing at 5%, annually, forever?

a) Rs.2,500

b) Rs.2000

c) Rs.3,000

d) None of these​

Answer 1

Answer:

a. 2500

Step-by-step explanation:

$PVA = R/(1-g)\\= 50/(0.07-0.05)\\= Rs. 2,500$

The only thing perpetuity is is a certain kind of annuity. The periodic payments begin at a specific time or date and continue to increase forever in perpetuity. The fixed payouts of coupons are one type of perpetuity.

Perpetuity can be determined using an easy formula. However, there are two considerations to make:

The worth of a perpetuity is typically limited. This is true since it is well known that receipts currently have a very low value. Expecting a high future worth is therefore pointless.

Most importantly, the primary sum has no present value. This is due to the fact that the principal is never paid back.

So, if the cash flow is single, one can use the above formula to calculate the future value. All that you need to do is: Replace “A” with the future value and “P” with single cash flow. Therefore, we get F = C.F(1+i)^n

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Answer 2

Answer:PVA=R÷i-g

Rs-50÷0.07.0.05=2

5000÷2=2500

Step-by-step explanation: