If we assume that the cash flow grows at an annual rate of 3 percent, and the relevant interest rate is 6 percent, we can assume a constant income stream and discount it at a net interest rate of approximately:

Question

Quizplus · Accepted Answer

The net interest rate is calculated by subtracting the growth rate of the cash flow from the interest rate. Here, it's 6 percent (interest rate) - 3 percent (growth rate) = 3 percent. This gives a net interest rate of approximately 3 percent, which is used to discount the constant income stream.

If We Assume That the Cash Flow Grows at an Annual