Growing Annuity - Time value question

[notjusttp]

Hi David,

How do we calculate the undermentioned in Scientific calculator ?( More specificaly BAII PLUS)

What is the Net Present Value of a yearly payment starting at 100 and increasing 2% yearly for 15 years, when the discount rate is 4%? Round to the nearest tenth.

Ans is 1260.

Thanks & Best Rgds
Amit

 

[David Harper CFA FRM]

Hi Amit,

I don't know formula for growing annuity, btw, I had to look the following up
(it's definitely not on the FRM ... but i was curious)

looks like you can replace rate (I/Y) with (4% - 2%)/(1+2%) = 1.96%
and pmt with 100/(1+2%)
then PV (rate = (4% - 2%)/(1+2%), 15, 100/(1+2%), 0) = 1,263
...and it works b/c i checked against longhand in XLS!

David

 

[notjusttp]

Hi David,

you are just 2 good...Fast and furious..Thks for this..and yaa i m happy its not in FRm..cheers..amit