1. What is Present Value of Growing Annuity?

The Present Value of a Growing Annuity calculates the current worth of a series of future payments that grow at a constant rate. It's commonly used in finance to value investments, retirement plans, or any cash flows that increase over time.

2. How Does the Calculator Work?

The calculator uses the Present Value of Growing Annuity formula:

Where:

• \( PV \) — Present Value (USD)
• \( PMT \) — Initial periodic payment (USD)
• \( r \) — Discount rate per period (decimal)
• \( g \) — Growth rate per period (decimal)
• \( n \) — Number of periods (unitless)

Explanation: The formula accounts for both the time value of money (through the discount rate) and the growth of payments over time.

3. Importance of PV Calculation

Details: Calculating present value of growing cash flows is essential for investment analysis, retirement planning, and valuing financial instruments with increasing payments.

4. Using the Calculator

Tips: Enter all values as positive numbers. The discount rate and growth rate should be in decimal form (e.g., 5% = 0.05). The growth rate must be different from the discount rate.

5. Frequently Asked Questions (FAQ)

Q1: What if growth rate equals discount rate?
A: The formula simplifies to PV = PMT × n when g = r. Our calculator doesn't handle this special case - you would need to calculate it separately.

Q2: What time periods can I use?
A: The formula works for any consistent time period (years, months, etc.) as long as all rates match the period.

Q3: Can growth rate be negative?
A: Yes, the formula works for negative growth rates (declining payments), but the growth rate must be less than the discount rate.

Q4: How does this differ from regular annuity PV?
A: A regular annuity assumes constant payments (g=0), while this formula accounts for payment growth over time.

Q5: What are common applications?
A: Valuing stocks with growing dividends, pension obligations with cost-of-living adjustments, or leases with scheduled rent increases.