1. What is Perpetuity Payment?

Perpetuity Payment is a fixed sum of money paid at regular intervals indefinitely. It represents a stream of equal payments that continue forever, commonly used in finance for valuing assets with infinite cash flows.

2. How Does the Calculator Work?

The calculator uses the perpetuity payment formula:

Where:

• \( PMT_{perpetuity} \) — Perpetuity Payment
• \( PV \) — Present Value of the perpetuity
• \( r \) — Rate per Period (interest rate)

Explanation: The formula calculates the fixed periodic payment that can be sustained indefinitely from a given present value at a specified interest rate.

3. Importance of Perpetuity Calculation

Details: Perpetuity calculations are essential in finance for valuing stocks with constant dividends, pension funds, endowment funds, and other financial instruments that provide infinite cash flows.

4. Using the Calculator

Tips: Enter the present value in dollars and the rate per period as a percentage (e.g., 5 for 5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between perpetuity and annuity?
A: Perpetuity payments continue indefinitely, while annuity payments are made for a fixed period of time.

Q2: Can perpetuity payments change over time?
A: In a standard perpetuity, payments remain constant. However, growing perpetuities exist where payments increase at a constant rate.

Q3: What are real-world examples of perpetuities?
A: Preferred stocks with fixed dividends, consol bonds issued by governments, and certain types of trust funds are common examples.

Q4: How does interest rate affect perpetuity payments?
A: Higher interest rates result in higher perpetuity payments for the same present value, as the money earns more return each period.

Q5: Is perpetuity calculation used in stock valuation?
A: Yes, the Gordon Growth Model uses perpetuity principles to value stocks with dividends growing at a constant rate indefinitely.