An indefinite series of payment of equal amounts at regular intervals on a fixed date is known as Perpetuity. The word ‘Perpetuity’ is a combination of two terms perpetual annuity, i.e. a form of annuity which goes on forever and therefore its future value cannot be calculated. Hence, it is a continuous stream of consistent cash flows over the years.
First and foremost the initial fund i.e. principal is established and then the payments flow from the funds for an infinite period. These fixed cash flows are the annual interest payments.It starts at a particular date and lasts forever. Perpetuity is divided into two categories:
Constant Perpetuity: Remains constant over the years
Growing Perpetuity: Grows at a uniform rate forever.
