How to Calculate the Annual Payment of a Perpetuity

by C. Taylor

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.