Question

Assume the appropriate discount rate is 4%. You will receive a payment every year for the next 17 years, which will grow at 3% annually. The amount of the first payment will be $2,000. What is the current value of this series of payments?

Answer 1

present value of growing annuity = payment * (1 - (1+g)^n * (1 + i)^-n)/(i - g)

g is growth rate which is 3%

payment = $2000

i is discount rate = 4%

n = 17

Present value of growing annuity = 2000 * (1 - (1.03)^17*(1.04)^-17)/(.04 - .03)

= $30,294.45