Module 5 Topic 3

Perpetuity is an annuity whose payments continue forever. Some examples of perpetuity are
preferred stock dividends (assuming the company will never become bankrupt) and the annual
scholarship derived from the yearly interest on money donated by a philanthropist.

Formula

R
A∞ = present value of a perpetuity
i

R=i A∞ periodic payment of a perpetuity

Sample problems
1. What is the present value of a P7,600 perpetuity payable at the beginning of each month if
money is worth 14% converted monthly?
Given:
R = 7,600
j = 14%
m = monthly or 12
i = 14%/12 or 1.167% or .01167

What is the present value?

R
A∞ =
i

7,600
A∞ =
.01167

7,600
A∞ =
.01167

A∞ =651,428.57

2. Don Marcelo Tolero donates P5,000,000 to De La Salle Lipa to provide for annual scholarship
grant indefinitely. The first scholarship is to be given in one year. If the money earns 12 ¾ %,
how much is the annual scholarship?
Given
A∞ =5,000,000
j = 12 ¾% or 12.75%
m = annual or 1
i = 12.75%/1 or 12.75% or .1275
R=i A∞

R=.1275 ( 5,000,000 )

R=637,500