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:



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BREAKING DOWN '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).

  1. Annuity

    A financial product that pays out a fixed stream of payments ...
  2. Distribution Yield

    The amount of cash flow received or paid out by an annuity, REIT ...
  3. Perpetual Bond

    A bond with no maturity date. Perpetual bonds are not redeemable ...
  4. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
  5. Dividend Discount Model - DDM

    A procedure for valuing the price of a stock by using predicted ...
  6. Maturity Date

    The date on which the principal amount of a note, draft, acceptance ...
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  1. How is perpetuity used in determining the intrinsic value of a stock?

    Investors are often interested in determining intrinsic values of the stocks, bonds or other securities as they consider ... Read Full Answer >>
  2. Is an annuity a perpetuity?

    An annuity can be a perpetuity, depending on how it is set up. An annuity is an investment that makes regular payments throughout ... Read Full Answer >>
  3. Why do companies issue 100-year bonds?

    Although it is rare, companies do issue bonds that exceed an average person's life expectancy. For example, multi-billion ... Read Full Answer >>
  4. How liquid are variable annuities?

    Variable deferred annuities and variable immediate annuities are not considered liquid. Variable deferred annuities carry ... Read Full Answer >>
  5. Do variable annuities have RMDs?

    Variable annuities are not subject to required minimum distributions (RMDs) unless they are held in qualified plans, such ... Read Full Answer >>
  6. 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 >>

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