Presentation:

To find the present value of a perpetuity, we need to calculate the present value of all future cash flows and sum them up. In this case, the stock pays an annual amount of Rs. 10 from the 6th year onwards. We are given a rate of return of 20%. We will use the formula for the present value of a perpetuity to solve this problem.

Calculation:

Step 1: Determine the cash flow per period

In this case, the cash flow per period is Rs. 10, as the stock pays this amount annually.

Step 2: Determine the rate of return

The rate of return is given as 20%.

Step 3: Use the formula for the present value of a perpetuity

The formula for the present value of a perpetuity is:

PV = CF / r

Where:
PV = Present value
CF = Cash flow per period
r = Rate of return

In this case, PV = 10 / 0.20 = 50

So, the present value of the perpetuity is Rs. 50.

Answer:

The present value of the perpetuity is Rs. 50.

Justification:

The present value of a perpetuity represents the current value of an infinite series of cash flows. In this case, the stock pays an annual amount of Rs. 10 from the 6th year onwards. The present value of this perpetuity is calculated using the formula PV = CF / r, where CF is the cash flow per period and r is the rate of return.

By substituting the given values into the formula, we find that the present value of the perpetuity is Rs. 50. This means that, at a discount rate of 20%, the present value of all future cash flows from the stock is equal to Rs. 50.