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An investment that currently sells for $240 makes payments every year forever, which grow at 10%...

An investment that currently sells for $240 makes payments every year forever, which grow at 10% annually. If the next payment amount is $12, what is the annual return on this investment?

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Expert Solution

present value of growing perpetuity is calculated by below formula

pv = cash flow /(required rate - growth)

240=12/(k-0.1)

k-0.1 = 0.05

k =0.15

so Annual return on the investment is 15%

jeff jeffy answered 2 years ago
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