How to value a perpetuity
Discount an endless payment stream to today.
1
Enter the payment
Use the annual amount paid before any growth.
2
Set the discount rate
Use a rate that reflects the risk and opportunity cost of the cash flow.
3
Add growth if any
Keep growth below the discount rate for a finite answer.
What does this tool do?
A perpetuity pays the same amount forever, so its value depends mainly on the discount rate. Adding growth raises the value as long as growth stays below the discount rate.
The Formula
PV = Payment ÷ (Discount rate − Growth rate)Frequently Asked Questions
When is the perpetuity formula valid?
Only when the discount rate is greater than the growth rate. Otherwise the sum of the payments does not converge to a finite value.
Why include a growth rate?
It models payments that rise with inflation or a contract escalator. Set growth to zero for a level perpetuity.