Suppose the interest rate is 5% per year. You are offered two perpetuities. The first pays a constant amount of $100 per year with the first payment a year from now. The second is a growing perpetuity. The first payment is a year from now and is $50; this will grow at a rate of 2.5% per year forever.  

Which is more valuable, the growing perpetuity or the constant perpetuity?

Answer rating: 100% (QA)

To determine which perpetuity is more valuable we need to compare their present values The present v... View the full answer