Annuities and perpetuities

In this lesson

1. 0:00 Annuities and perpetuity overview
2. 1:08 Annuity factor versus discount tables
3. 1:39 Perpetuity fundamentals explained
4. 2:27 Growing perpetuity calculations
5. 3:17 Delayed perpetuity formula
6. 3:59 Growing perpetuity worked example
7. 5:13 Delayed growing perpetuity example

About this lesson

This lesson covers standard annuities using annuity factor tables, perpetuities (payments forever), growing perpetuities (with annual growth rates), and delayed perpetuities (starting in future years). You'll see how to apply each formula efficiently and work through practical examples so you can tackle present value calculations with confidence in your exams. Annuities are equal annual cash flows over a fixed period. Rather than discounting each year individually, annuity factor tables let you calculate present value in one step—a huge time-saver in the exam. Perpetuities extend this concept: they're equal payments lasting indefinitely (or into the foreseeable future, as examiners phrase it). The calculation is elegantly simple: divide the annual cash flow by the discount rate. The lesson then builds to more complex scenarios. Growing perpetuities increase by a fixed percentage each year—common in business valuations—and use the formula: annual cash flow divided by (discount rate minus growth rate). Delayed perpetuities start several years from now, requiring you to adjust your discount factor to account for the timing. You'll work through a complete example calculating both a growing perpetuity and a delayed growing perpetuity, showing exactly how to apply the formulas and read discount factor tables correctly. By the end, you'll have a clear framework for recognising which technique applies, selecting the right formula, and executing the calculation accurately under exam conditions.

Duration: 6m