Perpetual Annuities - Texas Instruments BA II PLUS User Manual

Perpetual Annuities

A perpetual annuity consists of equal payments that continue
indefinitely. An example of a perpetual annuity is a preferred
stock that yields a constant dollar dividend.
These time-line diagrams represent a perpetual annuity as an
ordinary annuity and as an annuity due.
• For a perpetual ordinary annuity:
PV
0
• For a perpetual annuity due:
PV
PMT
0
Because the term (1 + I/Y / 100)
equations approaches zero as N becomes larger, you can use
the following equations to solve for the present value of a
perpetual annuity.
• For a perpetual ordinary annuity:
PV =
• For a perpetual annuity due:
PV = PMT +
42
PMT
1
PMT
1
PMT
( I/Y / 100)
PMT
( I/Y / 100)
PMT
. . . to infinity
2
PMT
. . . to infinity
2
-N
in the present value annuity
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