Investment X and Investment Y are both growing perpetuities with initial cash fl

Question

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? Investment X has a higher growth rate than Investment Y. Investment X has a lower growth rate than Investment Y. The answer cannot be determined without knowing the interest rate for both investments. 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.

Explanation / Answer

A

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