3.4 Perpetuity

永續年金

Perpetuity is an ordinary annuity whose payments /receipts

continue forever. The present value of perpetuity is：

PV of perpetuity=

As approaching zero, we arrive at：

PV of perpetuity=

Since perpetuity is expected to continue infinitely, future value does not apply to it.

Example 3.11

A preference share offers fixed dividend $0.8 per share per year. If the shareholders' required rate of return is 12%, what price should the share be？

Solution

PV of the preference share=0.8/12%=$6.67 per share