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Present Values of Growing Annuities Given that year 1 cash flow is $1000. Suppose you are expected to receive cash flows that are growing at

Present Values of Growing Annuities

Given that year 1 cash flow is $1000. Suppose you are expected to receive cash flows that are growing at a constant rate of 4% starting from year 1 up to 4 years. What is the present value of these growing annuities if the required rate of return is 8%?

Year

FV

PV

1

1,000

-$925.93

2

1000 x 1.04 = 1,040

-891.63

3

1040 x 1.04 = 1,081.60

-858.61

4

1,081.60 x 1.04 = 1,124.64

-826.81

The correct answer is in the above last column. But how do I calculate PV?

I tried using this formula but could not get the PV for each of the year: PV = FV/(1 + r)-t

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