easy · Principles of Finance time-value-of-money
Why is it often stated that no asset can grow at a constant rate (g) that is permanently higher than the discount rate (r)?
- Taxes on high growth rates make the net return lower than the discount rate.
- Interest rates always rise to match the growth rate of any specific asset.
- The asset would eventually become larger than the entire economy, and its present value would be infinite.
- The Gordon Growth Model only allows for negative growth rates.
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