What is the present value of a series of payments that grow by 10% per year over 5 years. The starting value is $50,000 at the end of year 1. The interest rate (discount rate) is 6%, compounded annually.

PV= $163,714.68

Explanation:

Giving the following information:

A series of payments grow by 10% per year over 5 years. The starting value is $50,000 at the end of year 1. The interest rate is 6%.

The easiest way is to include the growing rate in the interest rate, therefore:

Interest rate= 16%

First, we need to calculate the final value of the annuity and then the present value:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit= 50,000

i= 0.16

n= 5

FV= {50,000*[(1.16^5)-1]}/0.16= $343,856.77

Now, we can calculate the present value:

PV= FV/(1+i)^n

PV= 343,856.77/1.16^5= $163,714.68

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