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Perpetuity

A perpetuity is a series of cash flows that continue indefinitely, used in valuation analysis to find the present value of a company's future projected cash flows and terminal value. Perpetuities are calculated by discounting future cash flows back at a certain rate and have been issued by governments as bonds that pay a coupon forever.

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90 views1 page

Perpetuity

A perpetuity is a series of cash flows that continue indefinitely, used in valuation analysis to find the present value of a company's future projected cash flows and terminal value. Perpetuities are calculated by discounting future cash flows back at a certain rate and have been issued by governments as bonds that pay a coupon forever.

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Ella
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PERPETUITY

Perpetuity in the financial system is a situation where a stream of cash flow payments


continues indefinitely or is an annuity that has no end. In valuation analysis, perpetuities
are used to find the present value of a company’s future projected cash flow stream and
the company’s terminal value. Essentially, a perpetuity is a series of cash flows that
keep paying out forever.

The concept of a perpetuity is used in numerous financial models. The British


government issued perpetuities in the form of bonds called consols. Upon purchase, a
consol pays a small coupon forever (or until the debtor decides to redeem it).

A perpetuity calculation in finance is used in valuation methodologies to find the present


value of a company's cash flows. This is done by discounting back at a certain rate.

Source:
https://corporatefinanceinstitute.com/resources/knowledge/finance/perpetuity/
https://www.investopedia.com/ask/answers/060915/what-are-differences-between-
annuity-derivation-and-perpetuity-derivation-time-value-money.asp

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