Future Worth Of Perpetuity Calculator

Future Worth of a Perpetuity Formula:

\[ FP = A \times \frac{(1+i)^n - 1}{i} \]

Future Worth of Perpetuity (FP):

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1. What is Future Worth of a Perpetuity?

The Future Worth of a Perpetuity is a financial metric that represents the total value of an infinite series of equal cash flows where the cash flows continue indefinitely into the future. It helps in evaluating investments with perpetual returns.

2. How Does the Calculator Work?

The calculator uses the Future Worth of Perpetuity formula:

\[ FP = A \times \frac{(1+i)^n - 1}{i} \]

Where:

$ FP $ — Future Worth of Perpetuity
$ A $ — Annuity amount ($)
$ i $ — Discrete compound interest rate (as decimal)
$ n $ — Number of interest periods

Explanation: The formula calculates the accumulated value of perpetual periodic payments at a given interest rate over a specified number of periods.

3. Importance of Future Worth Calculation

Details: Calculating the future worth of perpetuity is essential for financial planning, investment analysis, and evaluating long-term financial instruments that provide perpetual income streams.

4. Using the Calculator

Tips: Enter the annuity amount in dollars, interest rate as a percentage, and the number of interest periods. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between perpetuity and annuity?
A: An annuity has a fixed number of payments, while a perpetuity continues indefinitely with no end date.

Q2: Can the future worth of perpetuity be infinite?
A: Mathematically, yes, but in practical financial applications, we calculate the value over a finite number of periods.

Q3: What types of investments use perpetuity calculations?
A: Perpetuity calculations are used for preferred stocks, endowment funds, and certain types of bonds that pay perpetual interest.

Q4: How does the interest rate affect the future worth?
A: Higher interest rates result in higher future worth values, as money grows faster through compounding.

Q5: Is this calculation applicable to real-world scenarios?
A: While true perpetuities are rare, the calculation provides a useful benchmark for evaluating long-term investments with extended payment periods.