Present Value of a Perpetuity

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Present Value of a Perpetuity

A Perpetuity is a series of indefinite cash flows. It can thus be considered as a special case of an Annuity where the annuity extends indefinitely. Basically, we can use the Present Value of an Annuity formula to derive the Present Value of a Perpetuity. Just imagine that the value of n (period) in the Present Value of an Annuity formula becomes infinitely large, the value of (1/((1+r)^n)) will tend towards 0, leading to the simplification of the formula.

Formula of Present Value of a Perpetuity

PV = A / r

PV is Present Value
r is the interest rate
A is the Annuity amount

You may want to bring up the Present Value.xls spreadsheet and refer to the Worksheet Present Value (Perpetuity).

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Present Value of a series of unequal cash flow

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