Perpetuities

Time Value Of Money

What Is Perpetuity

Perpetuity is a cash flow with an infinite amount of equal payments. True perpetuities are not common , but a few still exist. One example of perpetuity is the consol, a popular government bond in great Britain that has no maturity date.

Another example of a perpetuity is preferred stock,preferred stock is an investment that resembles both and a stock , and it is a perpetuity because its fixed dividend payments could last forever.

When series of annuity payments has an unknown ending date, and the ending date is believed to be many years away, it is often easiest to assume that will continue forever, or end in perpetuity.

Example  for calculating the present value

Perpetuity formula

PV(PERPETUITY)=	PMT
	I

The equation for calculating the present value of perpetuity is as follows, in this equation, PMT represents the payment made per period, and I represents the interest rate for the perpetuity.