Valuing a Constant-Growth Annuity: An Applied
Approach Using a Financial Calculator
Michael J. Sullivan (1)
This paper models the
closed-form solutions of the present and future values of a constant-growth
annuity in a manner that allows easy application of the time-value-of-money
functions of a financial calculator. This model allows exact solutions and is
valuable to practitioners and students for a number of applications that are
often ignored in business classes, due to the inherent cumbersome mathematics. Example
of constant-growth annuities include: retirement annuity contracts, insurance
policies, leases, installment purchases, and court-awarded payments.
Key Words: annuity, valuation
1. Michael J. Sullivan, Assistant Professor, Department of Finance, University of Nevada-Las Vegas, 4505 Maryland Parkway, Las Vegas, NV 89154. Phone: (702) 895-4669. E-mail: sullivan@ccmail.nevada.edu.
* The author wishes to thank First Interstate Bank of Nevada for providing support for this project.