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.

  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. Perpetuity

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

    The date on which the principal amount of a note, draft, acceptance ...
  6. Yield

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