Growing Annuity
A growing annuity is a finite stream of cash flows that grow at a constant rate and that are evenly spaced in time.
E.g., Income streams, savings strategies, project revenue/expense streams
The PV of a growing annuity is computed as follows:
PV of Growing Annuity =
Again, this formula assumes that the first cash flow occurs at t=1. If it occurs at t=0, add it to the above formula.
Also, g must be less than R.
Simple Example
How much do you have to save today to withdraw $100 at the end of this year, $102.5 after the next year,
$105.06 the year after, and so on for the next 19 years, if you earn 5% per annum?
The timeline is as follows:CF=100, g=0.025, T=20, R=0.05
So, PV = = $1529.69
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