What does 'Perpetuity' mean
Perpetuity refers to an infinite amount of time. In finance, it is a constant stream of identical cash flows with no end, such as with the Britishissued bonds known as consoles. The concept of a perpetuity is also used in financial theory, such as in the dividend discount model (DDM).
BREAKING DOWN '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.
An annuity is a stream of cash flows. A perpetuity is a type of annuity that lasts forever, into perpetuity. The stream of cash flows continues for an infinite amount of time. In finance, a person uses the perpetuity calculation in valuation methodologies to find the present value of a company's cash flows when discounted back at a certain rate. Specifically, the perpetuity formula determines the amount of cash flows in the terminal year of operation. In valuation, a company is said to be a going concern, meaning that it goes on forever. For this reason, the terminal year is a perpetuity, and analysts use the perpetuity formula to find its value.
Perpetuity Formula
The basic formula used to calculate a perpetuity is cash flows divided by some discount rate. The formula used to calculate the terminal year in stream of cash flows for valuation purposes is bit more complicated. It is the estimate of cash flows in year 10 of the company, multiplied by one plus the company’s longterm growth rate, and then divided by the difference between the cost of capital and the growth rate. Simplified, the terminal year is some amount of cash flows divided by some discount rate, which is the basic formula for a perpetuity.
Perpetuity Example
For example, if a company is projected to make $100,000 in year 10, and the company’s cost of capital is 8%, with a longterm growth rate of 3%, the value of the perpetuity is $100,000, multiplied by 1.03%, and then divided by or 5%. The answer is $2.06 million. This is saying that $100,000 paid into perpetuity, and assuming a 3% rate of growth, with an 8% cost of capital, is worth $2.06 million in 10 years. Now, a person must find the value of that $2.06 million today. To do this, analysts use another formula referred to as the present value of a perpetuity.

Delayed Perpetuity
A perpetual stream of cash flows that start at a predetermined ... 
Perpetual Bond
A bond with no maturity date. Perpetual bonds are not redeemable ... 
Perpetual Preferred Stock
A type of preferred stock that has no maturity date. The issuers ... 
Perpetual Subordinated Loan
A type of junior debt that continues indefinitely and has no ... 
Perpetual Option  XPO
A nonstandard financial option with no fixed maturity and no ... 
Terminal Value  TV
The value of a bond at maturity, or of an asset at a specified, ...

Markets
Understanding Perpetuity
Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date. 
Managing Wealth
Perpetual Bonds: An Overview
A perpetual bond makes interest payments to the investor forever. This type of bond holds a certain appeal to both the issuer and buyer. 
Investing
Understanding Periodic Vs. Perpetual Inventory
An overview of the two primary inventory accounting systems. 
Investing
What is Terminal Value?
The terminal value of an asset is its anticipated value on a certain date in the future. 
Investing
Analyze Cash Flow The Easy Way
Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors. 
Investing
Cash Flow From Investing
Cash flow analysis is a critical process for both companies and investors. Find out what you need to know about it. 
Investing
Fundamental Case Study: Is Amazon's Cash Flow Actually Solid? (AMZN)
Review Amazon's cash flow situation, including its free cash flow yield, operating cash flow from organic growth and cash flow from debt financing. 
Investing
Valuing Firms Using Present Value Of Free Cash Flows
When trying to evaluate a company, it always comes down to determining the value of the free cash flows and discounting them to today. 
Managing Wealth
Cash Flow Is King: How to Keep it Running
Why is cash flow so important, and what steps can a business take to improve it? 
Trading
Free Cash Flow Yield: A Fundamental Indicator
Free cash flow can measure a business’s performance as if you’re looking at its net income line.

Is an annuity a perpetuity?
Find out how an annuity can sometimes be a perpetuity, and understand how an annuity's payments can be set up to make it ... Read Answer >> 
What are the differences between an annuity derivation and perpetuity derivation ...
Understand the differences between an annuity derivation and perpetuity derivation of the time value of money. Learn the ... Read Answer >> 
How is perpetuity used in determining the intrinsic value of a stock?
Learn about the basics of a perpetuity, its valuation, how it is calculated and how it is used when evaluating the intrinsic ... Read Answer >> 
Is Social Security Income a perpetuity?
Find out why Social Security income is not classified as a perpetuity, including what constitutes a perpetuity and the basics ... Read Answer >> 
For $800,000 invested today, an insurance company promises to start making perpetual ...
The correct answer is: A) We must first link the $800,000 today to the period when the perpetuity payments will begin. In ... Read Answer >> 
When and why should the terminal value be discounted?
Find out why investors use the terminal value, why the terminal value is discounted to the present day, and how it's related ... Read Answer >>