Calculate the present value of a perpetuity

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Annuities, growing annuities, perpetuities and growing perpetuities can be easily compared by looking at the duration of the cash flow and the amount to be received at a regular interval. When we compare annuities versus perpetuities, these two basically differ as to the length of time the cash inflows are received. In annuities, payments are received over the length of the life of a financial asset or a certain period of time while in perpetuities, payments received can go on forever.

Question. Can we calculate the present value of a perpetuity that last forever? If so, what is the formula for that and please provide an example.

 

Reference no: EM132955684

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