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Anmol gets a rent of Rs 100 each month for the next infinite years. Assuming rate at 12%. Find the present value.

Question

Anmol gets a rent of Rs 100 each month for the next infinite years. Assuming rate at 12%. Find the present value.

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Solution

To calculate the present value of an infinite series of future payments (also known as a perpetuity), we can use the formula:

PV = PMT / r

where:

  • PV is the present value we want to find,
  • PMT is the amount of each payment, and
  • r is the interest rate per period.

In this case, Anmol receives Rs 100 each month, so PMT = 100. The interest rate is 12% per year, but since the payments are monthly, we need to convert this to a monthly rate. There are 12 months in a year, so the monthly rate is 12% / 12 = 1% = 0.01 in decimal form. So, r = 0.01.

Substituting these values into the formula, we get:

PV = 100 / 0.01 = Rs 10,000

So, the present value of the rent payments is Rs 10,000.

This problem has been solved

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