You are expecting 22 growing annual payments, starting with $1,000 next year. The payments will increase by

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Question:

You are expecting 22 growing annual payments, starting with $1,000 next year. The payments will increase by 5% from year to year. The appropriate discount rate is 5.6%.

a. Calculate the present value of those expected payments, using the annuity formula.

b. Calculate the present value of those expected payments, by forecasting each of the cash flows, computing their present values separately, and then computing the sum of the present values.