Different Types of TVOM
Perpetuity
Perpetuity is similar to annuity. The only difference between annuity and perpetuity is the ending period. For annuity, payments last for a certain period, whereas for perpetuity, they continue indefinitely, as represented by (∞).
The equation below is used to calculate present value of perpetuity. It requires only the first payment and interest rate.
where…
- PV(∞) = present value of perpetuity.
- C = the first payment
- r = interest rate per period