Contents
Time Value of Money
Annuities
Perpetuities
Kinds of Interest Rates
Future Value of an Uneven Cash flow
Probability Distribution
Standard Deviation
CAPM
Security Market Line
Bond Valuation
Stock Valuation
Cost of Capital
The Balance Sheet
Capital Budgeting
Hall of Fame
Credit Report
Forex
401K
ETFs
Futures
Inflation
IPOs
Mergers
Online Scams
Calculators
Financial Terms
Scientific Terms
Military Terms
Financial Charts
Unemployment
Fuel Mileage
Sports Finance
Energy Efficiency
Japanese
Chinese
हिन्दी
العربية
Espanol
Francias
Portuguese
Disclaimer




Perpetuities

Perpetuities - are equal payments made regularly, like every month or every year, that go on forever.

You are rich. (Yes, but are you really happy?) You want to start the YOUR NAME HERE Scholarship at your university. Every year, some student will receive a $1000 scholarship. You're paying for it. Even after you, your kids and your grandkids are dead, you are still paying for it. Forever.


The question is....How much money will it cost you. In today's dollars. What is the present value of this perpetuity. (Hint: starting now and going on forever and ever, you assume the interest rate at your bank is going to be 3%).
PV (of a perpetuity) = payment / interest rate

Every year the interest you earn is used to pay for the scholarship. The principal in your bank account doesn't really change year to year.

  • PV (of a perpetuity) = payment / interest rate
  • PV = $ 1000 / .03
  • PV = $ 33,333

So, you put $ 33,333 into the bank. Each year the money earns $1000 interest. That interest becomes the scholarship.








About the author

Mark McCracken

Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English".

Copyright © 1997 - 2009 by Mark McCracken , All Rights Reserved