Annuity vs. Perpetuity — What's the Difference?
By Tayyaba Rehman — Updated on September 21, 2023
Annuity refers to periodic payments for a specific period, while perpetuity means payments that continue indefinitely, with no end.
Difference Between Annuity and Perpetuity
Table of Contents
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Key Differences
Annuity and perpetuity are financial terms relating to payments made over time. An annuity represents a series of equal payments made at equal intervals for a fixed period. In contrast, perpetuity denotes payments that, theoretically, go on forever, without an ending date.
Often encountered in finance, an annuity could be like a mortgage or car loan where you pay a fixed sum for a set number of years. Perpetuity, being infinite, is more abstract but can be seen in preferred stocks where dividends are received as long as the stock is held, representing a form of perpetuity.
Valuation methods differ for an annuity and perpetuity. For an annuity, the present value or future value can be computed considering the time frame and interest rate. Perpetuity, since it's infinite, has its present value calculated by dividing the periodic payment by the discount rate.
While annuity payments cease after the stipulated period, perpetuity payments never stop. This difference makes annuities more common in real-world applications like loans or retirement plans, whereas perpetuities remain largely theoretical but can offer insight into long-term investment evaluations.
In essence, while both annuity and perpetuity involve periodic payments, their key difference lies in duration. An annuity has a clear start and end, while perpetuity persists indefinitely, a concept often more academic than practical.
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Comparison Chart
Duration
Fixed period
Infinite
Common Examples
Mortgages, car loans
Preferred stock dividends
Valuation
Considers time frame and interest
Payment divided by discount rate
Application
More practical
Largely theoretical
End of Payments
After a specified period
Never
Compare with Definitions
Annuity
Financial product providing regular payments
He bought an annuity for his retirement.
Perpetuity
Payment that persists without an end date
The foundation agreed to fund the project in perpetuity.
Annuity
A fixed sum of money paid each year
She was granted an annuity of $10,000 yearly.
Perpetuity
An investment with no end
His family set up a perpetuity for the local hospital.
Annuity
A series of equal payments at fixed intervals
She receives an annuity from her insurance policy.
Perpetuity
Constant and ceaseless financial benefit
The land was leased in perpetuity, ensuring constant income.
Annuity
Payments spread across a specified time
The annuity lasted for 20 years, providing him stability.
Perpetuity
A perpetuity is an annuity that has no end, or a stream of cash payments that continues forever. There are few actual perpetuities in existence.
Annuity
An annuity is a series of payments made at equal intervals. Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments.
Perpetuity
The quality or condition of being perpetual
"The perpetuity of the Church was an article of faith" (Morris L. West).
Annuity
The annual payment of an allowance or income.
Perpetuity
Time without end; eternity.
Annuity
The right to receive this payment or the obligation to make this payment.
Perpetuity
The condition of an estate that is limited so as to be inalienable either perpetually or longer than the period determined by law.
Annuity
A contract or agreement by which one receives fixed payments on an investment for a lifetime or for a specified number of years.
Perpetuity
An estate so limited.
Annuity
A right to receive amounts of money regularly over a certain fixed period, in perpetuity, or, especially, over the remaining life or lives of one or more beneficiaries.
Perpetuity
An annuity payable indefinitely.
Annuity
A sum of money, payable yearly, to continue for a given number of years, for life, or forever; an annual allowance.
Perpetuity
(uncountable) The quality or state of being perpetual; endless duration; uninterrupted existence.
Annuity
Income from capital investment paid in a series of regular payments;
His retirement fund was set up to be paid as an annuity
Perpetuity
(countable) Something that is perpetual.
Annuity
Periodic payments from an invested sum
The lottery offered him an annuity option or a lump sum.
Perpetuity
A limitation intended to be unalterable and of indefinite duration; a disposition of property which attempts to make it inalienable beyond certain limits fixed or conceived as being fixed by the general law.
Perpetuity
An annuity in which the periodic payments begin on a fixed date and continue indefinitely.
Perpetuity
The quality or state of being perpetual; as, the perpetuity of laws.
A path to perpetuity of fame.
The perpetuity of single emotion is insanity.
Perpetuity
Something that is perpetual.
Perpetuity
Endless time.
Perpetuity
The number of years in which the simple interest of any sum becomes equal to the principal.
Perpetuity
Duration without limitations as to time.
Perpetuity
The property of being perpetual (seemingly ceaseless)
Perpetuity
Constant stream of identical payments indefinitely
The trust established a perpetuity for the charity.
Perpetuity
Infinite series of financial payments
The scholarship was funded in perpetuity.
Common Curiosities
Is perpetuity a real investment?
It's largely theoretical, but some investments, like certain dividends, can resemble perpetuities.
Can annuities be for life?
Yes, there are life annuities that pay until the beneficiary's death, but they have an endpoint.
Are pensions a form of annuity?
Yes, pensions are a type of annuity providing periodic payments during retirement.
Why are perpetuities considered more theoretical?
Because few real-world investments provide payments forever.
How does perpetuity differ?
Perpetuity represents payments that continue indefinitely.
Why choose an annuity?
It provides predictable income, especially useful for retirement.
How do you calculate the value of an annuity?
The value depends on the payment amount, interest rate, and number of periods.
Do perpetuities have a principal amount?
They don't have a principal that diminishes; they focus on endless payments.
What is an annuity?
An annuity is a series of equal payments made at regular intervals for a specific period.
What risks are associated with annuities?
They can be affected by interest rates, issuer solvency, and early withdrawal penalties.
How is perpetuity value determined?
It's the periodic payment divided by the discount rate.
Can an annuity be sold?
Yes, there are markets where beneficiaries can sell their annuity for a lump sum.
Which is more common, annuity or perpetuity?
Annuities are more common due to their practical applications in finance and investment.
Do perpetuities have any real-world applications?
Some financial products, like preferred stocks, can offer dividends resembling perpetuities.
Are there different types of perpetuities?
The basic concept remains constant, but variations in payment amounts would no longer classify it as a strict perpetuity.
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Written by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
