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Alyshahas been offered two perpetuities: Grow and Shrink. Grow promises her $200in one year and an annual cash flow that will increase by4percent per year
Alyshahas been offered two perpetuities: Grow and Shrink. Grow promises her $200in one year and an annual cash flow that will increase by4percent per year forever. Shrink, in contrast, promises her $1,900in one year but the annual cash flow will decline by2percent forever. If her opportunity cost is6percent per year and both annuities cost $1,900, which annuity offers her the greater value?
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