Growing annuity payment – present value
The present value of a growing annuity formula calculates the present day value of a series of future periodic payments that grow at a proportionate rate. A growing annuity may sometimes be referred to as an increasing annuity. A simple example of a growing annuity would be an individual who receives $100 the first year and successive payments increase by 10% per year for a total of three years. This would be a receipt of $100, $110, and $121, respectively.
The present value of a growing annuity formula relies on the concept of time value of money. The premise to this concept is that a specific quantity of money is worth more today than at a future time.