imported>Doug Williamson |
imported>Doug Williamson |
Line 1: |
Line 1: |
| ''Financial maths''.
| | The purchase and cancellation of outstanding securities through a cash payment to the holder. |
| | |
| (GAF).
| |
| | |
| Growing annuity factors are used to calculate present values of growing annuities.
| |
| | |
| 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. | |
| | |
| | |
| | |
| == Present value calculations ==
| |
| | |
| | |
| A growing annuity factor can be used to calculate the total present value of a growing [[annuity]].
| |
| | |
| 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.
| |
| | |
| The discount factors need to be adjusted because of the growth of the cash flows.
| |
| | |
| | |
| By analogy with the simple annuity factor abbreviated as AF(n,r) ''or'' AF<SUB>n,r</SUB>
| |
| | |
| The growing annuity factor can be abbreviated as GAF(n,r,g) ''or'' AF<SUB>n,r,g</SUB>
| |
| | |
| | |
| | |
| === Present value ===
| |
| | |
| The [[present value]] of the growing annuity is calculated from the Growing Annuity Factor (GAF) as:
| |
| | |
| = GAF x Time 1 cash flow.
| |
| | |
| | |
| <span style="color:#4B0082">'''Example 1: Present value calculation'''</span>
| |
| | |
| Annuity factor = 1.842.
| |
| | |
| Time 1 cash flow = $10m.
| |
| | |
| Present value is:
| |
| | |
| = AF x Time 1 cash flow
| |
| | |
| = 1.842 x 10
| |
| | |
| = $'''18.42'''m
| |
| | |
| | |
| === Growing annuity factor calculation ===
| |
| | |
| The growing annuity factor for 'n' periods at a periodic yield of 'r' and a periodic growth rate of 'g' is calculated as:
| |
| | |
| AF(n,r,g)
| |
| | |
| = '''('''1 / (r-g) ''')'''
| |
| | |
| ::x '''('''1 - ( (1+g) / (1+r) )<sup>n</sup> ''')'''
| |
| | |
| | |
| Where
| |
| | |
| n = number of periods
| |
| | |
| r = periodic cost of capital
| |
| | |
| g = periodic growth rate from Time 1 period in the future
| |
| | |
| | |
| <span style="color:#4B0082">'''Example 2: Growing annuity factor calculation'''</span>
| |
| | |
| When the periodic cost of capital (r) = 6%
| |
| | |
| growth rate (g) per period = 1%
| |
| | |
| and the number of periods in the total time under review (n) = 2
| |
| | |
| | |
| The growing annuity factor is:
| |
| | |
| = '''('''1 / (r-g) ''')'''
| |
| | |
| ::x '''('''1 - ( (1+g) / (1+r) )<sup>n</sup> ''')'''
| |
| | |
| | |
| = '''('''1 / (0.06 - 0.01) ''')'''
| |
| | |
| ::x '''('''1 - ( (1.01) / (1.06) )<sup>2</sup> ''')'''
| |
| | |
| | |
| = '''('''20''')'''
| |
| | |
| ::x '''('''0.0921''')'''
| |
| | |
| = '''1.842'''
| |
| | |
|
| |
|
| | More specifically, the paying off or buying back of a debt security by the issuer on or before its stated maturity date. The redemption can be made at par value or at a premium, as is the custom when exercising a call option. |
|
| |
|
| == See also == | | == See also == |
| * [[Annuity]] | | * [[Call option]] |
| * [[Annuity factor]] | | * [[Par]] |
| * [[CertFMM]] | | * [[Premium]] |
| * [[CumDF]] | | * [[Puttable]] |
| * [[Discount factor]] | | * [[Sinking fund]] |
| * [[Perpetuity factor]] | | * [[Spens clause]] |
| * [[Present value]] | | * [[Undated]] |
| * [[Instalment]]
| |
| * [[Equated instalment]]
| |
| * [[Principal]]
| |