Ad Infinitum: Understanding the Time Value of Perpetual Returns

Important Keywords: Ad Infinitum, perpetual returns, time value of money, fixed-term annuity.

Ad Infinitum: Understanding Perpetual Returns

Introduction

It is a Latin phrase that means “to infinity.” In finance, the phrase refers to perpetual returns that are assumed to continue forever.

What are perpetual returns?

Perpetual returns are those that continue indefinitely at fixed intervals, without any end date.

Understanding Ad Infinitum While perpetual returns continue indefinitely, it’s essential to note that the present value of those returns decreases over time due to the time value of money.

Present value of perpetual returns The present value of a perpetual return is much lower than that of a fixed-term annuity, which ends after a specified period.

Key Takeaways:

• It refers to perpetual returns that continue indefinitely.
• The present value of perpetual returns decreases over time due to the time value of money.
• The present value of a perpetual return is lower than that of a fixed-term annuity.

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