Perpetuity Lesson/Tutorial: Definition, Present Value of a Perpetuity Formula & Examples

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In this Perpetuity Lesson I define what a perpetuity is, how to calculate the present value of a perpetuity, and also provide you with some examples of solving the present value of a perpetuity.

A perpetuity is a steady stream of Cash Flow s of equal amounts that are to be received or paid indefinitely. A perpetuity is a form of an ordinary annuity and is sometimes called a perpetuity annuity. A true perpetuity is rare but they are not non-existent. Around 1871 the British government issued a Bond that was a true perpetuity known as a Consol. The purchaser of a Consol was entitled to receive an annual coupon payment at a fixed rate forever. You may wonder why or how a government or any entity would want to agree to such a long-term commitment of payments. They do this because they can guarantee payment by reinvesting the money from the purchaser into Investment s that earn a higher return.