Perpetuity Calculator

# Perpetuity Calculator

The fact that the fixed payments that you will receive have a constantly decreasing present value allows us to calculate perpetuity. The present value of a perpetuity is equal to the regular payment divided by the discount rate .

**Formula us,**

PV = D / R

**Let us consider,**

**PV**is the**present value of perpetuity**– how much the perpetuity is worth,**D**is the**dividend**or regular**payment**– the amount of cash flow received every period,**R**is the**discount rate**– a percentage amount that represents the time value of money concept. It lowers the value of the future cash flows.

Perpetuity formula – an example

In this example, you will see how to calculate perpetuity step by step. You are offered a **bond** that pays a $20 **dividend** yearly and carries on indefinitely. Assuming a 5% **discount rate.**

PV = $20 / 5%

The answer is PV = $400.