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

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.

[kxypcmw]

For that last problem, you can also multiple the $100 by 12 months to get $1, 200 per year and then multiply that by the 5% interest rate which will result in the same answer of $24, 000.

[MrSupernova]

Great job! I have the absolute worse teacher anyone could have and she doesn't bother to explain why we're doing the equations which leads to lots confusion. She's a phd student teaching, is very disorganized, and has a heavy accent - like i was saying...

I learned more from ur video than in class. Thanks!

[bensmith]

Simply but amazing explanation. Thanks.

[ThaoNguyen-ybxq]

Wonderful explanation! I'm glad to have found your video!

[themarkla]

I watched the whole thing. Thank you for the information 🙏

[francoisdufour]

Best explanation ever! Thank you, bro!

[anujintumurbaatar]

Thank you, made me understand more than a book and my tutor

[shr]

I am wondering why in the beginning of the session, the PV formula included 1 in the denominator (ie (1+r) and yielded 90.91. In the second example, only r is in the denominator.  Can you help me understand this?  Thanks

[iambergeson]

+Subjectmoney,

Would it be correct to say that it is impossible to have a perpetuity that pays a floating rate coupon because you would be unable to determine a present value?

[praveenkumarm]

Why 100/ .05 ? (Last part).
It should be 100/ (1+.05) right?

[andrean]

great video.. absolutely clear.. Thank you

[tharakiravindya]

how do you get 0.004166667 from 0.4166667, what is the theory behind that?