Texas Instruments BA II Plus - Perpetual Annuities

42 BA II PLUS™ Calculator
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
PMT PMT
. . . to infinity
01 2
•
For a perpetual annuity due:
PV
PMT PMT PMT
. . . to infinity
01 2
Because the term (1 + I/Y / 100)
-
N
in the present value annuity
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 =
PMT
(
I/Y
/ 100)
•
For a perpetual annuity due:
PV = PMT +
PMT
(
I/Y
/ 100)