Question

At 6 % p.a., compounded quarterly, find the present value of a perpetuity of ₹ 600 payable at the end of each quarter.

Hint:

For perpetuities, use \( PV = \frac{P}{r} \), where \( r \) is the interest rate per period.

Answer 1

Step 1: The formula for the present value of a perpetuity is: \[PV = \frac{P}{r},\]where \( P \) represents the payment per period, and \( r \) denotes the interest rate per period.
Step 2: The quarterly interest rate is calculated as: \[r = \frac{6}{4} \% = 0.015.\] Step 3: Substituting \( P = 600 \) and \( r = 0.015 \) into the formula yields: \[PV = \frac{600}{0.015} = 40,000.\]