Investment: Growth Rate and Breaking Even
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In singer Whitney Houston's will, she leaves her daughter, Bobbi Kristina, $20 million. Bobbi Kristina goes to the Body Guard Bank where her financial adviser, Frank Farmer, recommends that she use a discount rate of 5% when evaluating her investment alternatives. He tells her about an "I Will Always Love You" perpetuity investment that promises an initial payout of 2.0% at the end of the first year and subsequent payments that grow each year. If Bobbi Kristina invests the entire $20 million in this perpetuity, what minimum growth rate will she need to break even?
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Solution Summary
The solution discusses the minimum growth rate needed to break even.
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