Mursalin Ibne Salehin
In this article, we will learn to calculate the future value of a growing annuity in Excel. In Excel, users can solve different problems using different Excel Functions. Also, users can build simple mathematical formulas for calculating different quantities. Today, we will demonstrate the process of calculating the future value of a growing annuity in quick steps. Here, we will use a simple formula to determine the future value. So, without any delay, let’s start the discussion.
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What Is Future Value of Growing Annuity?
A Growing Annuity is a series of payments that occurs after an equal interval of time and grows at a constant rate. It is also called the increasing annuity. The Future Value of a Growing Annuity is the amount of money someone gets after a series of increasing payments. In this case, each payment increases at a constant growth rate. There are two types of growing annuities.
- Ordinary Growing Annuity
- Growing Annuity Due
In Ordinary Growing Annuity, payments are made at the end of each period. And in a Growing Annuity Due, payments are made at the beginning of each period.
The general formula for the future value of a growing ordinary annuity is:
Here,
- P is the amount of periodic payment.
- i is the interest rate per period.
- g is the growth rate.
- n is the number of periods.
Also, the general formula for the future value of growing annuity due can be written as:
In the sections below, we will show the calculation of the future value of a growing annuity.
Step-by-Step Procedures to Calculate Future Value of Growing Annuity in Excel
To explain the steps, we will use a dataset that contains information about the periodic payment, interest rate per period, number of periods, and growth rate. In our case, the Periodic Payment is $650, and Interest Rate Per Period is 6.5%. Also, the number of Periods is 12. Most importantly, the Growth Rate is 3.5%. We will use the same dataset to determine the future value of both the growing ordinary annuity and growing annuity due.
STEP 1: Insert Formula for Growing Ordinary Annuity
- Firstly, we will insert the formula to calculate the future value of the growing ordinary annuity.
- In order to do that, select Cell C10 and type the formula below:
=C5*(((1+C6)^(C7)-(1+C8)^(C7))/(C6-C8))
In this formula,
- C5 is the periodic payment (P) which is $650.
- C6 is the interest rate (i).
- C7 is the number of periods (n).
- C8 is the growth rate (g).
Read More: How to Do Ordinary Annuity in Excel (2 Methods)
STEP 2: Determine Future Value of Growing Ordinary Annuity
- Secondly, we will determine the future value of the growing ordinary annuity.
- To do so, after inserting the Ordinary Growing Annuity formula, press Enter to see the result.
Here, we can see the future value of the growing ordinary annuity is $13,390.60.
Read More: How to Apply Future Value of an Annuity Formula in Excel
STEP 3: Apply Formula for Growing Annuity Due
- Thirdly, we will apply a formula for the future value of the growing annuity due. Here, we use the same dataset.
- In order to do that, select Cell C10 and type the formula below:
=(1+C6)*C5*(((1+C6)^(C7)-(1+C8)^(C7))/(C6-C8))
The difference between this formula with the previous one is that we are multiplying (1+C6) with the previous formula. Here, C6 is the interest rate per period.
Read More: How to Apply Present Value of Annuity Formula in Excel
STEP 4: Calculate Future Value of Growing Annuity Due
- In the following step, we will calculate the future value of the growing annuity due.
- After applying the Growing Annuity Due formula, press Enter to see the result.
Here, you can see the future value of the growing annuity due in Cell C10. The future value of the growing annuity due is greater than the growing ordinary annuity. It happens because you are paying the periodic payment at the beginning of each payment in case of a growing annuity due.
Read More: How to Calculate Annuity Factor in Excel (2 Ways)
Conclusion
In this article, we have discussed step-by-step procedures to calculate the Future Value of Growing Annuity in Excel. I hope this article will help you to perform your tasks efficiently. Furthermore, we have also added the practice book at the beginning of the article. To test your skills, you can download it to exercise. Also, you can visit the ExcelDemy website for more articles like this. Lastly, if you have any suggestions or queries, feel free to ask in the comment section below.
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