Learning the meaning of perpetuity can help you understand some of the most important concepts in finance. Let’s get started!
Perpetuity is a word that not many people truly understand. The concept of perpetuity deals primarily with the ideas of endlessness in terms of cash flows and incomes that have no maturity date and an indefinite duration. While the concept of perpetuity doesn’t come up a lot in daily financial decisions, it’s still imperative to understand it in the context of finance as a whole.
Here is everything you need to know about what perpetuity means, where the word comes from, and how it is applied in the modern world. It’s critically important in many scenarios, and knowing how to use this word properly can help people view you as an incredibly savvy individual.
What Does Perpetuity Mean?
The most common meaning of the word perpetuity (ˌpɜːpɪˈtjuːɪtɪ, per·pe·tu·i·ty) found in the dictionary of the English language is the quality, state, or qualifier of something being entirely perpetual or eternal. The meaning of perpetuity is based on the idea of uninterrupted existence, endless duration, and an indefinite period of time. At its shortest length, something in perpetuity is something that is going to last for a very long period.
Another primary definition of perpetuity is an annuity or stream of cash flows that is payable forever. These refer to bonds and consols that pay out future cash and dividends in periodic payments forever in— AKA, in perpetuity. Because of this, the valuation of perpetuity is seen as a lot more valuable than just its present value. This is also commonly seen in the context of real estate, in which the value of the perpetuity is seen as something that will likely go up and create dividends over time.
What Is the Etymology of the Word Perpetuity?
The word perpetuity has linguistic roots in both Latin and French, making it a reasonably typical term in the English language. It has remained relatively similar meanings throughout its history, and it seems to be maintaining its definition in perpetuity.
The word’s first known use is in the Latin perpetuus, which means “continuing throughout.” As time went on and Latin entered the middle ages, it slowly became the Latin perpetuitās. After that, it turned into the Old French perpetuite, the first semi-modern usage of the word. It combined with the English word perpetual around the 15th century to create the Late Middle English perpetuite.
Throughout these different versions of the word, most of their meanings were relatively similar. This shows that language is a living and moving thing, with terms constantly changing and shifting — or not.
What Does Perpetuity Mean in the Legal and Financial Worlds?
The concept of perpetuity within finances is the idea of an infinite cash flow. No matter what perpetuity formula is used, if the duration of regular income is endless, the terminal value of something in perpetuity is technically unlimited. Because of this, many investors are seeking out investments that will create interest and cash flow in perpetuity and won’t run out after a certain number of years.
Throughout the world of finance, there have been certain types of bonds and investments designed to remain stable for an unlimited number of years. The bondholder of perpetuity will receive income from these resources for as long as they own them. This means that in almost all cases, a bond with that status will be worth more than the present value of perpetuity because most of the value is determined to be in the future.
Example Sentences Using the Word Perpetuity
One of the best ways to learn how to use a word is by seeing it used in actual sentences. It makes it a lot easier to figure out what it means and enables you to learn how to use it yourself! Here are some great examples of the word perpetuity used in proper contexts.
- Due to the incredible value of consul perpetuity, the British government eliminated those British bonds in the United Kingdom in 2015.
- One of the best ways the increase either the condition of an estate or the present value of a company is to create an annuity based on perpetuity.
- Even though there is a finite present value in perpetuity, the interest rate and stream of cash payments of perpetuity make it one of the most valuable financial assets a person can have.
- In my finance class at Princeton University, we learned about using techniques to find ways to acquire principal in perpetuity.
- The entire Ity family was banished from operating within the country in perpetuity, which means that general law has banned them with no fixed return date.
- Choosing to purchase perpetual annuity has given my family security in perpetuity.
- While the stock price appeared to be rising in perpetuity, it finally plateaued around after fifteen years.
- The heritage of the UK exists in perpetuity in the world, with the amount of influence that it has had on significant world events for thousands of years.
- My family owns that copyright in perpetuity, thanks to the legal methods that my grandfather put into place.
Words like perpetuity can be confusing since there are specific meanings in different contexts. However, when you learn how to use a word correctly, it enables you to succeed in the world. Whether you’re dealing with property law, preferred stocks, or annual interest payments, knowing how to use the word perpetuity can help you to be much more precise in your financial discussions.
If you want to learn how to properly use more words and phrases in the English language, check out our blog here at The Word Counter! We’re constantly uploading new articles and posts to help demystify the English language and make it more accessible to people of all kinds.
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