Final answer:
A Perpetuity is a type of annuity where cash flows continue forever, such as certain British government bonds known as consols, and is used in finance to calculate the present value of such infinite cash flows.
Explanation;
The special case of annuity where the stream of cash flows continues forever is known as a Perpetuity.
An annuity is a series of equal payments made at regular intervals over a specified period. There are different types of annuities, such as Ordinary Annuity, where payments are made at the end of each period, and Annuity Due, where payments are made at the beginning of each period. However, Perpetuity stands out as it refers to a type of annuity that does not end. The payments continue indefinitely. A common example of perpetuity is the British government bonds known as consols. The key characteristic of perpetuity is that the principal amount is never repaid but continues to generate a steady stream of interest payments endlessly. This concept is fundamental in finance for calculating the present value of such infinite cash flows, typically using a formula derived from the time value of money concept.
A perpetuity is a type of annuity where the stream of cash flows continues forever. It is a special case of an annuity where there is no maturity date or end point to the stream of cash flows.
For example, a perpetual bond is a type of financial instrument that pays a fixed interest payment indefinitely, without any repayment of the principal amount.