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An investment that currently sells for $80 makes payments every year forever, which grow at 3%...

An investment that currently sells for $80 makes payments every year forever, which grow at 3% annually. If the next payment amount is $9, what is the annual return on this investment?

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Expert Solution

Present value of growing perpetuity = PMT / (K - g)

PMT = Next payment amount

K = annual return

g = growth rate

80 = 9 / (K - 0.03)

80k - 2.4 = 9

K = 11.4 / 80

= 14.25%

jeff jeffy answered 2 years ago
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