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

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http://www.subjectmoney.com 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.
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Text Comments (8)
Kelsey Sobomehin (21 days ago)
Awesome! Thank you!
Michelle CH (1 month ago)
thank you bless u
Praveenkumar M (3 months ago)
Why 100/ .05 ? (Last part). It should be 100/ (1+.05) right?
Francesco Randisi (9 months ago)
Very Good
iambergeson (1 year ago)
+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?
andre (2 years ago)
great video.. absolutely clear.. Thank you
Supernova (3 years ago)
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!
Stanley Ross (3 years ago)
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

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