Investment X and Investment Y are both growing perpetuities with initial cash flow of $100.Both investments have the same interest rate (r) .The present value of Investment X is $5,000,while the present value of Investment Y is $4,000.Which of the following is true?
A) Investment X has a higher growth rate than Investment Y.
B) Investment X has a lower growth rate than Investment Y.
C) Investment X has the same growth rate as Investment Y.
D) The answer cannot be determined without knowing the interest rate for both investments.
E) This makes no sense-with the same initial cash flow and the same interest rate Investment X and Investment Y should have the same present value.
Correct Answer:
Verified
Q56: How do you calculate (mathematically) the present
Q62: Q62: A rich donor gives a hospital $100,000 Q64: A growing perpetuity' with a first payment Q65: The present value (PV)(at age 30)of your Q66: You are thinking about investing in a Q70: Clarissa wants to fund a growing perpetuity Q71: AB Company has decided to donate to Q73: Assuming that college costs continue to increase Q76: Can we apply the growth perpetuity equation
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents