Perpetuity
Principles of Finance glossary · Time Value of Money
Definition
A stream of equal cash flows continuing forever.
Perpetuity in plain English
A perpetuity is a promise to pay the same amount of money every year, forever, with no end date. That sounds like it should be worth infinite money, but it isn't — because a dollar you'll get 50 years from now is barely worth anything to you today, so those far-off payments add up to a surprisingly modest, finite value. Imagine a magic savings account that pays you $100 every year for eternity: it's valuable, but you wouldn't trade a fortune for it, because most of those payments are in a distant future you have to wait ages for. It's a useful building block in finance because "steady payment forever" is simple to value with one clean formula.
Learn these first
Related Principles of Finance terms
Principles of Finance practice questions · Principles of Finance flashcards · Principles of Finance study guide