1. What is a Growing Annuity?

A growing annuity is a series of periodic payments that increase at a constant rate each period. The present value calculation helps determine what this future stream of growing payments is worth today.

2. How Does the Calculator Work?

The calculator uses the growing annuity formula:

Where:

• \( PV \) — Present value of the growing annuity
• \( PMT \) — Initial periodic payment amount
• \( r \) — Discount rate per period
• \( g \) — Growth rate of payments per period
• \( n \) — Number of periods

Explanation: The formula accounts for both the time value of money (discounting) and the increasing payment amounts (growth).

3. Importance of Present Value Calculation

Details: Calculating present value helps compare investment opportunities, evaluate retirement plans, and make financial decisions involving future cash flows.

4. Using the Calculator

Tips: Enter all values as positive numbers. The discount rate should be greater than the growth rate for the formula to work properly. All rates should be in decimal form (e.g., 5% = 0.05).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between a growing annuity and regular annuity?
A: A regular annuity has constant payments, while a growing annuity has payments that increase at a constant rate each period.

Q2: What happens if the growth rate equals the discount rate?
A: The formula becomes undefined (division by zero). In practice, the growth rate should be less than the discount rate.

Q3: Can this be used for decreasing payments?
A: Yes, by using a negative growth rate (though this is less common in practice).

Q4: What time periods can this be used for?
A: Any consistent time period (months, years, etc.) as long as all rates match the period length.

Q5: How does this differ from perpetuity calculations?
A: Perpetuities assume infinite periods (n→∞), while annuities have a fixed number of periods.