Growing Annuity Calculation Examples Help

Growing Annuity Calculation Examples, Illustration, Concepts, Sample Help Online

 

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Concept of Growing Annuity Calculation Examples

 

As the name says growing annuity means there is growth of payment at a particular rate. A growing annuity is also known as increasing annuity there are basically two formulas for calculating growing annuity. One is when present value is known and the other is future value of growing annuity.
 

Present value of Growing Annuity can be calculated using the following formula
 

PV= P/r-g(1-( 1+g/ 1+r)n)
Where, P is the first payment
r is rate per period
g is growth rate
n is number of periods
 

This formula can be used only when present value is specifically known. It is used only to calculate the initial payment.
 

Future value of Growing Annuity can be calculated using the following formula
FV= P((1+r)n – (1+g)n /( r-g))
 

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Growing Annuity Calculation Examples Explanation

 

Let’s take an example and understand the calculation of growing annuity.
Example: Suppose the initial payment is $2000. Number of periods is 5 years and rate per period is 3% and growth rate increases by 5% per year. Hence future value of growing annuity would be
$2000((1+.03)5 – (1+.05)5 / (.03- .05)) = $11700.75
This would be the amount after the 5th cashflow.
 

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