imported>Doug Williamson |
imported>Doug Williamson |
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| ''Financial maths''.
| | In theory there is an Interbank rate in Kuwait, sometimes known as KIBOR. |
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| (GAF).
| | However, KIBOR is an irrelevance for most corporate treasury activities. |
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| Growing annuity factors are used to calculate present values of growing annuities.
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| The simplest type of growing annuity is a finite series of growing future cash flows, starting exactly one period into the future, and growing at a constant percentage rate per period.
| | All KWD bank debt is priced as a spread over the Central Bank Discount Rate ("CBK"), which is changed by unilateral decision of the central bank. |
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| | CBK-based debt reprices immediately when the rate is changed, unlike other benchmark interest rates which only reprice at the end of the agreed fixing drawdown period. |
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| == Present value calculations ==
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| | '''Other KIBORs''' |
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| A growing annuity factor can be used to calculate the total present value of a growing [[annuity]].
| | Kuwait Inter Bank Offer Rate should not be confused with Karachi IBOR or Kiev IBOR, which are also sometimes known as KIBOR. |
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| The Growing Annuity Factor is the sum of the adjusted [[Discount factor]]s for maturities 1 to n inclusive, when the [[cost of capital]] is the same for all relevant maturities.
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| The discount factors need to be adjusted because of the growth of the cash flows.
| | ==See also== |
| | *[[Benchmark]] |
| | *[[Central bank]] |
| | *[[InterBank Offered Rate]] |
| | *[[KWD]] |
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| | | [[Category:Corporate_financial_management]] |
| By analogy with the simple annuity factor abbreviated as AF(n,r) ''or'' AF<SUB>n,r</SUB>
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| The growing annuity factor can be abbreviated as GAF(n,r,g) ''or'' AF<SUB>n,r,g</SUB>
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| === Present value ===
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| The [[present value]] of the growing annuity is calculated from the Growing Annuity Factor (GAF) as:
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| = GAF x Time 1 cash flow.
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| <span style="color:#4B0082">'''Example 1: Present value calculation'''</span>
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| Annuity factor = 1.842.
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| Time 1 cash flow = $10m.
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| Present value is:
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| = AF x Time 1 cash flow
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| = 1.842 x 10
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| = $'''18.42'''m
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| === Growing annuity factor calculation ===
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| The growing annuity factor for 'n' periods at a periodic yield of 'r' and a periodic growth rate of 'g' is calculated as:
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| AF(n,r,g)
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| = '''('''1 / (r-g) ''')'''
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| ::x '''('''1 - ( (1+g) / (1+r) )<sup>n</sup> ''')'''
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| Where
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| n = number of periods
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| r = periodic cost of capital
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| g = periodic growth rate from Time 1 period in the future
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| <span style="color:#4B0082">'''Example 2: Growing annuity factor calculation'''</span>
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| When the periodic cost of capital (r) = 6%
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| growth rate (g) per period = 1%
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| and the number of periods in the total time under review (n) = 2
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| The growing annuity factor is:
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| = '''('''1 / (r-g) ''')'''
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| ::x '''('''1 - ( (1+g) / (1+r) )<sup>n</sup> ''')'''
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| = '''('''1 / (0.06 - 0.01) ''')'''
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| ::x '''('''1 - ( (1.01) / (1.06) )<sup>2</sup> ''')'''
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| = '''('''20''')'''
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| ::x '''('''0.0921''')'''
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| = '''1.842'''
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| == See also ==
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| * [[Annuity]]
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| * [[Annuity factor]]
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| * [[CertFMM]]
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| * [[CumDF]]
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| * [[Discount factor]]
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| * [[Perpetuity factor]]
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| * [[Present value]]
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| * [[Instalment]]
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| * [[Equated instalment]]
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| * [[Principal]]
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In theory there is an Interbank rate in Kuwait, sometimes known as KIBOR.
However, KIBOR is an irrelevance for most corporate treasury activities.
All KWD bank debt is priced as a spread over the Central Bank Discount Rate ("CBK"), which is changed by unilateral decision of the central bank.
CBK-based debt reprices immediately when the rate is changed, unlike other benchmark interest rates which only reprice at the end of the agreed fixing drawdown period.
Other KIBORs
Kuwait Inter Bank Offer Rate should not be confused with Karachi IBOR or Kiev IBOR, which are also sometimes known as KIBOR.
See also
