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Finance: What is Perpetuity? 44 Views

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Description:

DeBeers used to promote its diamonds with the slogan, “A diamond is forever.” From a financial perspective, perpetuity refers to payments that are to ostensibly be made forever fo the recipient. In the real world, of course, everything has limits. In some legal applications, perpetuity used to average 80 years. In the case of trusts, corporations, or other entities that can outlive individuals, perpetuity can last for generations, or until the entity dissolves or ceases to be an ongoing concern. For all intents and purposes, it’s a "til death do us part" kind of arrangement.

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Transcript

00:00
finance a la shmoop. what is a perpetuity? forever. that's what you should think
00:08
when you hear the word perpetuity. well a perpetuity is a cousin to an annuity.
00:15
in an annuity you invest a given amount of money and then you get a portion of [100 dollar bill]
00:20
that dough paid out to you over a set number of years, or in the vein of a life
00:25
insurance policy it gets paid out until you are you know doing backstroke Six

00:29
Feet Under. and annuity sunsets well basically when you. do but a perpetuity [skeleton in the ground]
00:34
outlives you. it pays forever even when you're dead. so why would anyone want one
00:39
of these things? well they work for university scholarship endowments. you
00:43
know like think about a great Italian literature philanthropist named well
00:48
let's say Bella pepperoni. no offense to our Italian shmoopers out there. she made [woman wears name tag]
00:53
her fortune analyzing the works of Dante and Machiavelli and wants to endow a
00:58
scholarship for other PhDs in Italian Lit forever. well she'd put in say a
01:03
million bucks and it might get invested in half and bonds half in stocks with
01:07
yield and the throw from that million bucks might be something like a four or
01:11
five percent a year or forty or fifty grand and that would be more than enough [equations on screen]
01:15
to cover the basics for a PhD in Italian lit well more or less forever as
01:19
dividends get raised in stocks bro and all that stuff. the million bucks just
01:23
remains invested 50/50 stocks and bonds and the world continues to spin so yeah
01:28
even when she's no longer around to enjoy the fruits of her labor as well [headstone shown]
01:31
that fruit doesn't spoil develop mold and start to smell bad even if we can't
01:35
say the same for her. sorry. just keeping it real. [woman's picture next to casket.]
01:38
that's perpetuity. goes forever. perpetual.
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