Lets say :----> N= 15, I/y= 4% , FV = 0, PMT = starts with -$100, but increases with inflation (3%) …what will be the PV How can we do this using the calculator ? What will be PV of the investment which will earn 4% return every yr for 15 yrs and I need to take out $100 for first year and increasing with inflation (3%) every year and FV = 0
Use I/y= ((1.04/1.03)-1)*100 and PMT = -$100. Gives PV = $1389.63
Clarification: Above answer ($1389.63) assumes $103 (not $100) is payable at end of first year. If you want only $100 at end of first year divide answer by 1.03 - the result is PV = $1349.16 (=$1389.63/1.03).
That way is fast, but I’d never remember it. I (personally) would do it like this. (1) if it was a growing perpetuity, it would be worth $100/(0.04-0.03) = $10,000 (2) in 15 years, the growing perpetuity would be worth $100*(1.03)^15/(0.04-0.03) = $15,579.67 (3) the growing annuity PV is (1) less the present value of (2), or $10,000 - $15,579.67/1.04^15 = $1,349.16.