How to Calculate the Annual Payment of a Perpetuity

by C. Taylor, studioD

A perpetuity is an investment that supplies regular payments to the investor for an infinite period of time. The initial investment is never returned to the investor, who sacrifices this amount for the regularity of payments. While superficially attractive, these infinite payments never increase in price, so inflation will eventually degrade the perpetuity to a negative "real" return on investment. Payments are issued based on simple interest, which makes calculating this amount quite simple.

Call your investment broker and inquire about the annual interest rate on the perpetuity.

Divide this percentage by 100 to convert it into decimal format. As an example, an 8 percent interest rate would be converted to 0.08.

Multiply the investment amount by this figure to calculate the payment. In the example, if you invested $20,000, the annual payment would be $1,600.

About the Author

C. Taylor embarked on a professional writing career in 2009 and frequently writes about technology, science, business, finance, martial arts and the great outdoors. He writes for both online and offline publications, including the Journal of Asian Martial Arts, Samsung, Radio Shack, Motley Fool, Chron, Synonym and more. He received a Master of Science degree in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences at College of Charleston. He also holds minors in statistics, physics and visual arts.