Perpetual Bond

DEFINITION of 'Perpetual Bond'

A bond with no maturity date. Perpetual bonds are not redeemable but pay a steady stream of interest forever. Some of the only notable perpetual bonds in existence are those that were issued by the British Treasury to pay off smaller issues used to finance the Napoleonic Wars (1814). Some in the U.S. believe it would be more efficient for the government to issue perpetual bonds, which may help it avoid the refinancing costs associated with bond issues that have maturity dates.

A perpetual bond is also known as a 'consol'.

BREAKING DOWN 'Perpetual Bond'

Since perpetual bond payments are similar to stock dividend payments - as they both offer some sort of return for an indefinite period of time - it is logical that they would be priced the same way. The price of a perpetual bond is therefore the fixed interest payment, or coupon amount, divided by some constant discount rate, which represents the speed at which money loses value over time (partly because of inflation). The discount rate denominator reduces the real value of the nominally fixed coupon amounts over time, eventually making this value equal zero. As such, perpetual bonds, even though they pay interest forever, can be assigned a finite value, which in turn represents their price.

RELATED TERMS
  1. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  2. Annuity

    A financial product that pays out a fixed stream of payments ...
  3. Undated Issue

    A government bond that has no maturity date, and pays interest ...
  4. Yield

    The income return on an investment. This refers to the interest ...
  5. Perpetuity

    A constant stream of identical cash flows with no end. The formula ...
  6. Maturity Date

    The date on which the principal amount of a note, draft, acceptance ...
Related Articles
  1. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  2. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  3. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  4. Investing News

    Bill Gross: It's a Xanax Existence for the 99%

    Read about the investment letter from famed bond king Bill Gross for 2016. See how he says the 99% are living a Xanax existence while the 1% prosper.
  5. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  6. Retirement

    Retirees: How to Survive When Interest Rates Drop

    Low interest rates are a portfolio killer if you're living off of investment income. Some strategies for dealing.
  7. Mutual Funds & ETFs

    5 Vanguard Fixed Income Fund Underperformers

    Learn about three Vanguard fixed income mutual funds that underperform compared to their benchmark indexes. Find out why low expense ratios are important.
  8. Mutual Funds & ETFs

    Top 3 Allianz Funds for Retirement Diversification in 2016

    Discover the top three Allianz funds for retirement diversification in 2016, with a summary of the portfolio's managers, performance and risk measures.
  9. Mutual Funds & ETFs

    3 PIMCO Funds Rated 5 Stars by Morningstar

    Learn about three fixed income mutual funds managed by Pacific Investment Management Company (PIMCO) that have received five-star overall ratings from Morningstar.
  10. Term

    How Market Segments Work

    A market segment is a group of people who share similar qualities.
RELATED FAQS
  1. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
  2. What is the difference between positive and normative economics?

    Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Full Answer >>
  3. What is a basis point (BPS)?

    A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial ... Read Full Answer >>
  4. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  5. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
  6. Do hedge funds invest in bonds?

    Hedge funds have the freedom to deploy their capital in virtually any manner. They can use leverage, invest in non-publicly ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center