Note: In order to use the spreadsheet examples, you need to download Business Functions
|PVEGAnn (DisAER, TermYrs, AnnGrowthRate)|
|Present Value of an Exponentially Growing Annuity|
|This function uses standard annuity formulae to evaluate the Present Value of an Exponentially Growing Annuity where the growth is applied annually, initially at the end of the first year.|
|Unary||Unary Value ( ie value of $1)|
PVEGAnn is an adaptation of the standard annuity and perpetuity formulae, which means that the timing of payments is annually in arrears, and growth is applied annually in arrears too. Consult PVEGAnnM for a function where you can specify both the compounding interval for applying the growth rate and the actual timing of the payments.
With any annuity formula involving GROWTH, the key confusion is WHEN the growth commences. The answer is - at the end of year 1. But that does NOT mean the YEAR 1 payment is grown/inflated! In fact it means that growth starts at year 1, and therefore the first grown payment is at YEAR 2. So the payments are: Time 0 - 0, Time 1 - 1, Time 2 - (1+g), Time 3 - (1+g)^2, etc.