Question

What is the present value of a perpetuity of $100 given a discount rate of 5%?

Answer 1

Answer:

A perpetual annuity, also called a perpetuity, promises to pay a certain amount of money to its owner forever. A classic example would be that of a perpetual bond, which promises to pay interest each year, for eternity (or for as long as the borrower can afford to pay). Historically issued by governments, companies like Volkswagen have issued perpetual bonds to raise money at low interest rates.

Though a perpetuity may promise to pay you forever, its value isn't infinite. The bulk of the value of a perpetuity comes from the payments that you receive in the near future, rather than those you might receive 100 or even 200 years from now.