Perpetuity

外汇网2021-06-19 20:56:39 118

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

|||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 psent 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 pidend discount model (DDM).

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