Different Types of TVOM

Growing Perpetuity

With a growing perpetuity, there is a series of consecutive payments that continue indefinitely, and each payment grows at a constant rate.

Timeline with r equals 10%, -100 at 1,-105 at 2, -110.25 at 3, an arrow pointing to infinity, g equals 5% and P V G infinity equals question mark.

The equation below is used to calculate growing perpetuity:


P V G infinity equals numerator C sub 1 base denominator r minus g.

where…

Note that C1 is the value of the first payment (not the value of payment at t=0), and r must not be equal to g.