Future Value of Growing Annuity Formula

Future Value of Growing Annuity Formula

There may be a growing series of payment deposited with institution to receive lump sum amount on maturity. Series of payment grow at gradual rate. The future value of such annuity may be calculated by following formula

Annuity Factor =Cx [(1+i)ⁿ-(1+g)ⁿ]

                                  i-g

i= interest Rate

g=Growth rate

n= period

C=Deposited amount

Example

Deposit = 10,000

Growth Rate of deposit = 5%

Interest Rate = 9%

Period =10 Years

Solution

Annuity Factor =10,000x [(1+9%)¹⁰-(1+5%)¹⁰]

                                            9%-5%

=10000 x [2.367 – 1.6288]/.09-.05

=184,550