How to Calculate Monthly Returns on Perpetuities

How to Calculate Monthly Returns on Perpetuities
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A perpetuity is an annuity with no end date. The payments are continual and last forever. These are rare, but there have been a few historical examples. One of them was a type of bond called consuls offered by the British government, but these were phased out in 2015. The use of a monthly perpetuity calculator is typically for valuing other perpetual assets.

Types of Perpetuities

Unfortunately, you will probably not be able to find a perpetuity for sale. One of the best examples of the types of perpetuities available is in the form of real estate. If you rent an apartment, you could potentially receive rental income forever. The income from an apartment rental is considered a perpetuity in theory.

There are three types of perpetuities. A regular perpetuity is an amount of money that you pay to receive a regular amount of money in the future. This can be a dividend-paying stock or an investment in a project for profit. A perpetuity due is an annuity that is due at the time of the period, while a growing perpetuity is a monthly payment that grows by a certain percentage over time.

The theory behind many types of perpetuities is that the value of money does not stay the same. The payments from the perpetuity stay the same, but the value of the payments decreases over time. A dollar today will be more than that same dollar ​10​ years from now due to inflation. This means that perpetuity payments will decrease in value over time and be worth less in the future.

Perpetuity Rate of Return

One example of a perpetuity is the salary of a U.S. president. They receive a certain amount per year for life. There is often a cost-of-living increase associated with this that would be the perpetuity rate of return. In theory, a perpetuity would continue forever, even after a person’s death. For practical purposes, it is usually treated as if it continues until the end of a person’s life.

Monthly Perpetuity Calculator

To find how much you would receive from a perpetuity per month, you need to know the perpetuity rate of return. If the rate of return is expressed annually, then you divide the rate by ​12​ to get the monthly rate or return. For instance, if the annual rate of return was ​12​ percent, then the monthly rate of return would be ​one​ percent. You can then use this number in the monthly perpetuity calculator to determine your monthly income.

Let’s say the president receives a ​$100,000​ perpetuity at a ​six​ percent annual rate of return. Here is the formula you would use to calculate the monthly payments of a growing perpetuity. The first step is to find the monthly growth rate. In this case, you would divide ​six​ / ​12​ = ​0.5​ percent.

You would then deduct this from the interest rate. Let’s use ​0.25​ percent in this case. This means that the multiplier is ​o.5-0.25 = 0.25​. You would multiply this by the present value of the perpetuity to get the first monthly payment. If the present value is ​$100,000​, the first monthly payment is ​$250​.

If you want to find out the monthly payment at any time in the future, you can use the formula (1 + r ) ^ (t - 1). In this case, “r” is the interest rate, and “t” is the number of payments. If you want to calculate how much the payment will be 11 months from now, you would plug in: $250 ((1 + 0.0025) ^ (11 - 1)) = $256.32. Understanding how to calculate perpetuity payments can help you solve problems like determining the fair market value of a rental property or an investment.