Perpetuity

A perpetuity is a stream of cash flows that continues forever. The cash flows can be equal or unequal, and they can be paid at regular intervals or irregularly.

Perpetuities are often used to model the value of assets that generate a constant stream of income, such as bonds or real estate. The value of a perpetuity is equal to the present value of the cash flows, discounted at the appropriate interest rate.

For example, if a perpetuity pays $100 per year and the interest rate is 5%, the value of the perpetuity is $100 / 0.05 = $2,000.

Perpetuities can also be used to model the value of a company's earnings. The value of a company's earnings is equal to the present value of the future earnings, discounted at the appropriate interest rate.

For example, if a company is expected to earn $100 million per year in perpetuity and the interest rate is 5%, the value of the company is $100 million / 0.05 = $2 billion.

Perpetuities are a useful tool for financial analysis. They can be used to value assets, liabilities, and companies.