Question

Capitalised value of a property fetching a net annual rent of Rs. 1,000 and highest rate of interest prevailing being 10% will be:
1. 1,000
2. 1,00,000
3. 10,000
4. 100

Answer 1

Correct Answer - Option 3 : 10,000

Explanation:

Capitalised value:

Capitalised value 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.

In mathematical form it is represented as:

Capitalised value = Net annual income × Year’s Purchase

Year’s Purchase = \(\frac{{100}}{i}\)

i = rate of interest = 10%

Year’s Purchase = \(\frac{{100}}{{10}} = 10\)

Net annual income = Rs. 1,000

Capitalised value = 1,000 × 10 = Rs. 10,000