easy · Principles of Finance

Why is it often stated that no asset can grow at a constant rate (g) that is permanently higher than the discount rate (r)?

1. Taxes on high growth rates make the net return lower than the discount rate.
2. Interest rates always rise to match the growth rate of any specific asset.
3. The asset would eventually become larger than the entire economy, and its present value would be infinite.
4. The Gordon Growth Model only allows for negative growth rates.

Sign up free to see the explanation and track your rank →