Economics Time Value Of Money Questions Long
The formula for calculating the present value of an annuity payment with growth is as follows:
PV = C * (1 - (1 + r)^(-n)) / (r - g)
Where:
PV = Present Value of the annuity payment
C = Cash flow or annuity payment amount
r = Discount rate or interest rate
n = Number of periods or years
g = Growth rate of the annuity payment
This formula takes into account the growth rate of the annuity payment, which means that the annuity payment increases by a certain percentage each period. The present value is the current value of all future cash flows discounted at a specific interest rate.
By using this formula, you can determine the present value of an annuity payment with growth, which represents the amount of money that would need to be invested today to generate the future annuity payments, taking into consideration the growth rate and the time value of money.