Perpetuity

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Dictionary Says

Definition of 'Perpetuity'

A constant stream of identical cash flows with no end.  The formula for determining the present value of a perpetuity is as follows:

Perpetuity


  
Investopedia Says

Investopedia explains 'Perpetuity'

This is not as abstract a concept as you may think; the British issued bonds, called consols, which are a great example of a perpetuity. By purchasing a consol from the British government, the bondholder is entitled to receive annual interest payments forever. Although it may seem a bit illogical, an infinite series of cash flows can have a finite present value. Because of the time value of money, each payment is only a fraction of the last. 

The concept of a perpetuity is used often in financial theory, such as the dividend discount model (DDM).

Related Definitions

  • 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 ...
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  • Annuity

    A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the ...
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  • Dividend Discount Model - DDM

    A procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value. The idea is that if the value obtained from the DDM is higher than ...
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    • Maturity Date

      The date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due and is repaid to the investor and interest payments stop. It is also the ...
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    • Present Value - PV

      The current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount ...
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    • Monthly Income Plan - MIP

      A type of investment vehicle that provides a specified monthly payment to the investor. This monthly payment is intended to be a stable form of income and is therefore typically suited ...
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