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A stock pays annually an amount of rs.10 from the 6th onwards what is the present value of the perpetuity if thr rate of return is 20%?
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A stock pays annually an amount of rs.10 from the 6th onwards what is ...
To calculate the present value of a perpetuity, we can use the formula:
\[
PV = \frac{Cash\;flow}{Rate\;of\;return}
\]
Where:
- PV = Present Value
- Cash flow = Annual payment
- Rate of return = Discount rate
Given:
- Annual payment (Cash flow) = Rs. 10
- Rate of return = 20%
Calculation:
1. Calculate Present Value:
\[
PV = \frac{10}{0.20} = Rs. 50
\]
Therefore, the present value of the perpetuity is Rs. 50.
By investing Rs. 50 in this perpetuity, you can expect to receive Rs. 10 annually from the 6th payment onwards, with a rate of return of 20%. This means that the investment will pay for itself after 5 years, and any payments received after that will be pure profit.
Investors can use the present value of a perpetuity to determine the fair price to pay for an investment that generates a constant cash flow indefinitely. It helps in evaluating the attractiveness of an investment opportunity and making informed decisions regarding investments.
\[
PV = \frac{Cash\;flow}{Rate\;of\;return}
\]
Where:
- PV = Present Value
- Cash flow = Annual payment
- Rate of return = Discount rate
Given:
- Annual payment (Cash flow) = Rs. 10
- Rate of return = 20%
Calculation:
1. Calculate Present Value:
\[
PV = \frac{10}{0.20} = Rs. 50
\]
Therefore, the present value of the perpetuity is Rs. 50.
By investing Rs. 50 in this perpetuity, you can expect to receive Rs. 10 annually from the 6th payment onwards, with a rate of return of 20%. This means that the investment will pay for itself after 5 years, and any payments received after that will be pure profit.
Investors can use the present value of a perpetuity to determine the fair price to pay for an investment that generates a constant cash flow indefinitely. It helps in evaluating the attractiveness of an investment opportunity and making informed decisions regarding investments.
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A stock pays annually an amount of rs.10 from the 6th onwards what is the present value of the perpetuity if thr rate of return is 20%?
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A stock pays annually an amount of rs.10 from the 6th onwards what is the present value of the perpetuity if thr rate of return is 20%? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A stock pays annually an amount of rs.10 from the 6th onwards what is the present value of the perpetuity if thr rate of return is 20%? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A stock pays annually an amount of rs.10 from the 6th onwards what is the present value of the perpetuity if thr rate of return is 20%?.
A stock pays annually an amount of rs.10 from the 6th onwards what is the present value of the perpetuity if thr rate of return is 20%? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A stock pays annually an amount of rs.10 from the 6th onwards what is the present value of the perpetuity if thr rate of return is 20%? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A stock pays annually an amount of rs.10 from the 6th onwards what is the present value of the perpetuity if thr rate of return is 20%?.
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