An asset characterized by cash flows that increase at a constant rate forever is called a:
A) growing perpetuity.
B) growing annuity.
C) common annuity.
D) perpetuity due.
E) preferred stock.

Question

Quizplus · Accepted Answer

A growing perpetuity is a type of cash flow stream that increases by a constant rate over an infinite period of time. This is used to value investments that provide a constant stream of cash flows that are expected to grow at a constant rate, like dividend payments from stocks. The formula for the present value of a growing perpetuity is P = C / (r - g), where P is the present value, C is the constant cash flow, r is the discount rate, and g is the growth rate.

An Asset Characterized by Cash Flows That Increase at a Constant