Chennai Investment：How is the Growing Annuity Payment Formula using Present Value Derived？

The growing annuity payment from present value formula shown above is used to calculate the initial payment of a series of

periodic payments that grow at a proportionate rate. This formula is used specifically when present value is known.

A growing annuity is an annuity where the payments grow at a particular rate. For example, assume that the initial payment is

$100 and the payments are expected to grow each period at 10%Chennai Investment. As stated, the first payment is $100, then the second payment

would be $110 ($100 x [1 + g]), and the third payment would be $121 ($110 x [1 + g]).Pune Wealth Management

It is important to keep in mind that the formula shown above will only calculate the first payment.

The formula for calculating the initial payment on a growing annuity is found by rearranging the present value of a growing

annuity formula

The initial payment can be calculated by dividing both sides by the second portion of the formula shown directly above, which

can be shown as

This leaves the initial payment equal to the present value divided by this second section. This can then be further

simplified by multiplying PV times the reciprocal of the denominator, which will return the formula shown at the top of the

The payment at a future date can be calculated using the following formula

Using the prior example in the first section, an initial payment of $100 at a growth rate of 10% would have a third payment

of $121. This can be calculated by multiplying $100 by (1+g)2.

The formula for calculating the initial payment on a growing annuity and the formula for calculating a future payment can be

combined to give a complete formula for calculating a payment at time t.

Surat Wealth Management