From: "Inquisitive" 
Newsgroups: uk.finance
Subject: Re: Present value of a growing perpetuity
Date: 5 Jan 2005 06:59:01 -0800
   posting-account=3iTybgwAAAB_aVpKs40eE8dRparxIVXd

Many thanks to both you and Tim for your replies.

I have an associated question, based upon the answer of my query above:

I need to calculate the present value today of a cash flow stream that
starts at 150 in one year's time and grows at an annual rate of 6% (the
corresponding interest rate is 10%) up to and including the end of year
4.

I believe that I can do this by working out the present value of two
growing perpetuities, which both have the same interest rate (10%) and
growth rate (6%) but the first cash flow starting at different times
(at the end of year 1 for the former perpetuity and at the end of year
5 for the latter), then subtracting the latter from the former. The
details of these are obviously from my previous posting, but my query
is this - does this further question assume that the 150 payment has
also grown with the rate of interest (i.e. the PV is 3233.58 as you
have indicated above rather than 2561.30)?

What it boils down to is whether the present value is equal to:
(1) 3750 - 2561.30
or
(2) 3750 - 3233.57
Any further insight you can provide would be most appreciated.