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Someone will pay you $8,000 starting next year, and will increase the annual payment by 2%...

Someone will pay you $8,000 starting next year, and will increase the annual payment by 2% each year for 21 years. If the applicable discount rate is 8.1%, how much is this stream of cash flows worth today? Round to the nearest cent.

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Answer #1

PV of Growing Annuity = [P / (r - g)] * [1 - {(1 + g) / (1 + r)}n]

= [$8,000 / (0.081 - 0.02)] * [1 - {(1 + 0.02) / (1 + 0.081)}21]

= $131,147.54 * [1 - 0.2953] = $131,147.54 * 0.7047 = $92,419.62

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