What is a 'Perpetual Bond'
A perpetual bond is a fixed income security with no maturity date. One major drawback to these types of bonds is that they are not redeemable. Given this drawback, the major benefit of them is that they pay a steady stream of interest payments forever. A perpetual bond is also known as a "consol" or a "perp."
BREAKING DOWN 'Perpetual Bond'
Perpetual bonds exist within a small niche of the bond market. This is mainly due to the fact that there are very few entities that are safe enough for investors to invest in a bond where the principal will never be repaid. Some of the notable perpetual bonds in existence are those that were issued by the British Treasury for World War 1 and the South Sea Bubble of 1720. 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.
Perpetual Bond Valuation and Examples
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 due to 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.
Formula for the Present Value of a Perpetual Bond
Present value = D / r
Where:
D = periodic coupon payment of the bond
r = discount rate applied to the bond
For example, if a perpetual bond pays $10,000 per year in perpetuity and the discount rate is assumed to be 4%, the present value would be:
Present value = $10,000 / 0.04 = $250,000
Note that the present value of a perpetual bond is highly sensitive to the discount rate assumed since the payment is known as fact. For example, using the above example with 3%, 4%, 5% and 6% discount rates, the present values are:
Present value (3%) = $10,000 / 0.03 = $333,333
Present value (4%) = $10,000 / 0.04 = $250,000
Present value (5%) = $10,000 / 0.05 = $200,000
Present value (6%) = $10,000 / 0.06 = $166,667

Perpetuity
Perpetuity, in finance, is a constant stream of identical cash ... 
Perpetual Option  XPO
A perpetual option is a nonstandard financial option with no ... 
Bond Discount
Bond discount is the amount by which the market price of a bond ... 
Straight Bond
A straight bond is a bond that pays interest at regular intervals, ... 
ZeroCoupon Bond
A zerocoupon bond is a debt security that doesn't pay interest ... 
Bond Fund
A bond fund is a fund invested primarily in bonds and other debt ...

Investing
Understanding Bond Prices and Yields
Understanding this relationship can help an investor in any market. 
Investing
Understanding Periodic vs. Perpetual Inventory
An overview of the two primary inventory accounting systems. 
Investing
Investing in Bonds: 5 Mistakes to Avoid in Today's Market
Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market. 
Investing
How To Evaluate Bond Performance
Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk. 
Investing
Corporate Bonds: Advantages and Disadvantages
Corporate bonds can provide compelling returns, even in lowyield environments. But they are not without risk. 
Investing
Simple Math for FixedCoupon Corporate Bonds
A guide to help to understand the simple math behind fixedcoupon corporate bonds. 
Investing
5 Reasons to Invest in Municipal Bonds When the Fed Hikes Rates
Discover five reasons why investing in municipal bonds after the Fed hikes interest rates, and not before, can be a great way to boost investment income. 
Investing
Key Strategies To Avoid Negative Bond Returns
It is difficult to make money in bonds in a rising rate environment, but there are ways to avoid losses. 
Managing Wealth
How Bond Prices and Yields Work
Understanding bond prices and yields can help any investor in any market.

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 >> 
When is a bond's coupon rate and yield to maturity the same?
Find out when a bond's yield to maturity is equal to its coupon rate, and learn about the components of bonds and how they ... Read Answer >>