Economics Time Value Of Money Questions Long
The formula for calculating the future value of a perpetuity payment with growth is as follows:
Future Value = Payment / (Discount Rate - Growth Rate)
In this formula, the "Payment" refers to the amount of money received per period, the "Discount Rate" represents the rate of return or interest rate used to discount future cash flows, and the "Growth Rate" indicates the rate at which the payment is expected to grow over time.
To calculate the future value, divide the payment by the difference between the discount rate and the growth rate. This formula assumes that the perpetuity payment with growth is expected to continue indefinitely.
It is important to note that perpetuity payments with growth are commonly found in certain financial instruments, such as stocks or bonds, where the payment received by the investor increases over time. The formula allows investors to determine the future value of these payments, taking into account the discount rate and growth rate.