Assuming, that discount rate is 7% per annum, how much would you pay toreceive Rs.50, growing at 5%, annually, forever.(a) 2500(b) 3000(c) 3500(d) 4000
Question
Assuming, that discount rate is 7% per annum, how much would you pay to receive Rs.50, growing at 5%, annually, forever.
(a) 2500
(b) 3000
(c) 3500
(d) 4000
Solution
This is a question of calculating the present value of a growing perpetuity. The formula for the present value of a growing perpetuity is:
PV = D / (r - g)
where:
- PV is the present value
- D is the dividend or cash flow
- r is the discount rate
- g is the growth rate
In this case, D = Rs.50, r = 7% or 0.07, and g = 5% or 0.05.
Substituting these values into the formula, we get:
PV = 50 / (0.07 - 0.05) = 50 / 0.02 = 2500
So, you would pay Rs.2500 to receive Rs.50, growing at 5%, annually, forever. Therefore, the answer is (a) 2500.
Similar Questions
Select the correct answerFind the simple interest on Rs. 800 at 7% per annum and on Rs. 700 at 16% p.a. and on Rs. 500 at 4% p.a. for 2 years.
What is the simple interest on Rs. 90000 for 5 years at 8% per annum rate of interest?Question 6Answera.Rs. 32000b.Rs. 46000c.Rs. 30000d.Rs. 36000
What is the simple interest on Rs. 1500 at a rate of 10% per annum for 7 years? Ops: A. Rs. 900 B. Rs. 750 C. Rs. 1050 D. Rs. 1080
In what time will Rs.1,250, at 8% per annum, produce the same interest as Rs.2,000 does in 5 years at 0.5% simple interest?
A sum of Rs.2000 gives a simple interest of Rs.100 in 2 years. Find the rate of interest per annum ?5/4%5/6%5/2%5/8%
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.