Annuity

Perpetuities
Forever Never Ending

Perpetuity is a special type of

annuity which continues Everlasting
forever.
 Annuity

Perpetuities
Forever Never Ending

Perpetuity is a special type of

annuity which continues
Everlasting
forever.

Examples –
• Consols (bonds issued by the UK Government)
• Preferred Share (constant dividend)
★Future Value of Perpetuity is not possible to calculate since it lacks of
specified time period.

On the contrary, Calculating Present Value of a Perpetuity

turns out to be an easy process , we can use the formula below
assuming the interest rate remains constant over periods.

here:
- PV is the present value,
- CF is the cash flow per period,
- r is the interest rate.
If a perpetual bond offers 1,000 taka every year with the
interest rate 8% then Present Value (PV) of this bond is -

Taka
 Annuity VS Perpetuity

Annuity Perpetuity

A series of continuous cash flows of an Perpetuity is a type of annuity which

equal amount over a limited period is continues forever.
known as Annuity.
The annuity is for a fixed period but Perpetuity is everlasting.

An Annuity has two classification No such classification

1. Ordinary annuity
2. Annuity Due
It uses the compound interest to It uses the simple interest to calculate
calculate the present or future value of the present value of Perpetuity
Annuity
An Annuity is not a perpetuity A perpetuity is an annuity

i.e Insurance, Rent, EMI Consols, Constant Dividend

 Conclusion:

• Annuity has time limitations while perpetuity runs

forever.

• Calculations done for annuity is more complex

than the perpetuity.

• Future value of annuity can be calculated while for

perpetuity, it is not possible.