Shirley has been offered two perpetuities Grow and Shrink Grow
Shirley has been offered two perpetuities: Grow and Shrink. Grow promises her $100 in one year and an annual cash flow that will increase by 4 percent per year forever. Shrink, in contrast, promises her $1,000 in one year but the annual cash flow will decline by 2 percent forever. If her opportunity cost is 5 percent per year and both annuities cost $1,000, which annuity offers her the greater value?

Membership TRY NOW
  • Access to 800,000+ Textbook Solutions
  • Ask any question from 24/7 available
    Tutors
  • Live Video Consultation with Tutors
  • 50,000+ Answers by Tutors
OR
Relevant Tutors available to help