An annuity is a term that is mainly associated with retirement. By following some simple steps in Excel, one can easily calculate a growing annuity for one’s retirement plan. You will need some specific information regarding the methods and just find out the expected growing annuity in no time. In this article, we will show you how to calculate growing annuity in Excel.
Growing Annuity
Before beginning our procedure, we will try to understand what an annuity and a growing annuity are. In simple words, an annuity is a predetermined amount of money that you will start receiving either annually or monthly after a fixed amount of time. On the other hand, a growing annuity is a series of payments or revenues that rise consistently over a predetermined number of cycles, increasing in each period by a fixed percentage.
How to Calculate Growing Annuity in Excel: 2 Handy Ways
We will show you how to calculate both the present value of the growing annuity and the future value of the growing annuity. In this article, we will use two different methods to do so. In our first procedure, we will use the NPV function of Excel to calculate the present value of the growing annuity, and in our second method, we will apply the FV function to determine the future value of the growing annuity. For our working purposes, we will use the following data set.
From the data set, you can see that to calculate the growing annuity, we have the initial investment, interest rate, growth rate, and the number of years. From this information, we will determine the growing annuity.
1. Using NPV Function to Calculate Present Value of Growing Annuity in Excel
In our first procedure, we will calculate the present value of a growing annuity. To do that, we will use the NPV function. See the below-given steps for a better understanding.
Step 1:
- Firstly, we will determine the stream of payments for calculating the growing annuity.
- As our initial investment is $8,000 we have to calculate the growing payment from the second year.
- To do that, type the following formula into cell C7.
=C6*(1+$F$6)
Step 2:
- Secondly, press Enter and get the growing payment for the second year which is $8,440.
- Then, use the AutoFill feature to drag the formula for the lower cells of that specific column.
Step 3:
- Thirdly, we will calculate the present value for the growing annuity by applying the following formula of the NPV function.
=NPV(F5,C6:C15)
Step 4:
- Finally, hit the Enter button to get the required growing annuity which is $63,648.30.
Read More: How to Calculate Equivalent Annual Annuity in Excel
2. Applying FV Function to Determine Future Value of Growing Annuity
We will apply the FV function in our second procedure to calculate the future value of the growing annuity. Go through the following steps to do so.
Step 1:
- Firstly, take the following data set for calculation.
- Here, we have added an extra data input cell for payment to calculate the growing annuity.
- Also, we will require the present value of the growing annuity from the previous method.
Step 2:
- Secondly, write the following formula with the FV function in cell F11.
=FV(F5,F7,F8,-F10)
Step 3:
- Finally, press Enter and you will get the desired result which is $150,678.68.
Read More:Â How to Calculate Deferred Annuity in Excel
Download Practice Workbook
You can download the free Excel workbook here and practice on your own.
Conclusion
That’s the end of this article. I hope you find this article helpful. After reading the above description, you will be able to calculate the growing annuity in Excel by using any of the above-described methods. Please share any further queries or recommendations with us in the comments section below.
