Question

Calculate the capitalized value of a property if it fetches a net annual income of Rs. 15 hundred and the highest prevailing rate of interest is 5%.
1. Rs. 10,000
2. Rs.15000
3. Rs.40,000
4. Rs. 30,000

Answer 1

Correct Answer - Option 4 : Rs. 30,000

Concept:

Capitalized value

It is the amount of money whose annual interest at the highest prevailing rate of interest will be equal to the net income from the property.

To determine the capitalized value of a property, it is required to know the net income from the property and the highest prevailing rate of interest.

Capitalized value (V) of the property is given by:

V = Net income × Year purchase

Note:

Year’s purchase is defined as the capital sum required to be invested in order to receive an annuity of Rs. 1.00 at a certain rate of interest.

Year’s Purchase = \(\frac{{100}}{i}\)

Calculation:

Given,

Net annual income = Rs. 1500 

Rate of interest = 5 % p.a

Year purchase = \(\frac{{100}}{{5}} = 20\)

V = 1500 × 20 = Rs. 30000