1. What is a Growing Annuity?

A growing annuity is a series of periodic payments that increase at a constant growth rate each period. This calculator computes the future value of such an annuity, accounting for both the interest earned and the payment growth.

2. How Does the Calculator Work?

The calculator uses the growing annuity future value formula:

Where:

• \( PMT \) — Initial periodic payment amount (USD)
• \( r \) — Interest rate per period (decimal)
• \( g \) — Growth rate of payments per period (decimal)
• \( n \) — Number of periods (unitless)

Explanation: The formula accounts for both compound interest on the payments and the geometric growth of the payment amounts themselves.

3. Importance of Future Value Calculation

Details: Calculating the future value of growing payments helps in financial planning for situations like increasing retirement contributions, salary-based savings plans, or inflation-adjusted investments.

4. Using the Calculator

Tips: Enter all values as positive numbers. Interest and growth rates should be in decimal form (e.g., 5% = 0.05). The calculator assumes payments occur at the end of each period.

5. Frequently Asked Questions (FAQ)

Q1: What if the growth rate equals the interest rate?
A: The formula simplifies to FV = PMT × n × (1 + r)^(n-1) when g = r. Our calculator currently requires r ≠ g.

Q2: How does this differ from a regular annuity?
A: A regular annuity has constant payments (g = 0), while a growing annuity has payments that increase by rate g each period.

Q3: What time periods can I use?
A: You can use any consistent time period (months, years, etc.) as long as all rates match that period.

Q4: Are payments at the beginning or end of period?
A: This calculator assumes end-of-period payments (ordinary annuity). For beginning-of-period, multiply result by (1 + r).

Q5: Can I use this for decreasing payments?
A: Yes, by using a negative growth rate (g < 0), though the rate must still be different from r.