Investment X and Investment Y Are Both Growing Perpetuities with Initial

question 38

Multiple Choice

Investment X and Investment Y are both growing perpetuities with initial cash flow of $100. Both investments have the same interest rate (r) and cash flows. The present value of Investment X is $5,000, while the present value of Investment Y is $4,000. Which of the following is true?

• A) Investment X has a higher growth rate than Investment Y.
• B) Investment X has a lower growth rate than Investment Y.
• C) The answer cannot be determined without knowing the interest rate for both investments.
• D) With the same initial cash flow and the same interest rate, Investment X and Investment Y should have the same present value.

---

Definitions:

Lemon Trees

Perennial plants known for producing lemons, characterized by their citrus fruit and aromatic leaves.

Post Hoc

A logical fallacy that implies a cause and effect relationship simply because one event follows another in time.

Fallacy

A misleading or unsound argument or reasoning pattern that is incorrect logically but appears to be correct.

Causally Related

Refers to entities or events that have a cause-and-effect correlation with one another.