Perpetuity Calculator

Perpetuity Calculator

A perpetuity is a financial concept that refers to an infinite series of cash flows that continue forever. Perpetuities are often used in finance, investing, and valuation models to estimate the worth of assets or securities that provide ongoing payments, such as dividends or fixed interest payments.

Our Perpetuity Calculator makes it easy to determine the present value (PV) of a perpetuity using the widely recognized Gordon Growth Model. By entering the expected dividend (or cash flow), discount rate, and growth rate, you can quickly compute the value of perpetuities under different scenarios.

🔎 What is a Perpetuity?

A perpetuity is a type of financial instrument that pays cash flows forever. Unlike annuities, which have a fixed duration, perpetuities theoretically last for an infinite time.

👉 Formula for Present Value of a Growing Perpetuity:

Where:
PV = Present Value of the perpetuity
D = Dividend or cash flow in the next period
r = Discount rate (required rate of return)
g = Growth rate of the dividend/cash flow

⚠️ Important Condition: The discount rate (r) must always be greater than the growth rate (g); otherwise, the formula does not hold, as the perpetuity value would be infinite or undefined.

📚 Examples

Example 1

Dividend (next period), D = $1,000
Discount Rate, r = 10%
Growth Rate, g = 4%

Step 1 – Apply Formula:

Step 2 – Simplify:

✅ Present Value = $16,666.67

This shows that with moderate growth, the perpetuity is worth over $16,000 today.

Example 2

Dividend (next period), D = ₹500
Discount Rate, r = 12%
Growth Rate, g = 5%

Step 1 – Apply Formula:

Step 2 – Simplify:

✅ Present Value = $7,142.86

Example 3

Dividend (next period), D = ₹2,000
Discount Rate, r = 15%
Growth Rate, g = 6%

Step 1 – Apply Formula:

Step 2 – Simplify:

✅ Present Value = $22,222.22

✨ Features of Our Perpetuity Calculator

👩‍💼 Who Should Use This Calculator?

💡 Why Perpetuity Valuation Matters

Many stocks, bonds, and investments can be approximated using the perpetuity model.
The Gordon Growth Model is widely used in equity valuation and discounted cash flow (DCF) analysis.
Perpetuities help analysts understand the long-term impact of growth vs. discount rates on valuations.