Explain the Concept of Growing Annuities

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The Answer is A growing annuity is identical to a growing perpetuity except that the cash flows terminate at date T.It is possible to derive the present value of this perpetuity from equation [PV = C/(r - g)].Applying the reasoning used to derive the annuity formula,we find that a growing annuity is like the difference between two growing perpetuities.One commences at date 1 and has a present value given by the equation.The second perpetuity commences at date T + 1 and has a present value equal to

A growing annuity is identical to a growing perpetuity except that the cash flows terminate at date T.It is possible to derive the present value of this perpetuity from equation [PV = C/(r - g)].Applying the reasoning used to derive the annuity formula,we find that a growing annuity is like the difference between two growing perpetuities.One commences at date 1 and has a present value given by the equation.The second perpetuity commences at date T + 1 and has a present value equal to .The numerator,C(1 + g)<sup>T</sup>,is the initial payment of the growing perpetuity,and thus replaces C in the equation.The second term in the denominator,(1 + r)<sup>T</sup>,would not appear if we were valuing the perpetuity at date T.However,to find its value at date 0,we discount its date T value for an additional T periods.

.The numerator,C(1 + g)^T,is the initial payment of the growing perpetuity,and thus replaces C in the equation.The second term in the denominator,(1 + r)^T,would not appear if we were valuing the perpetuity at date T.However,to find its value at date 0,we discount its date T value for an additional T periods.

Explain the Concept of Growing Annuities

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