Perpetuity and Sinking Fund

A perpetuity is a stream of equal payments that continues forever — think of an endowment fund that pays a fixed scholarship each year without ever exhausting its principal. The key idea is that the present value of such an infinite series is finite, given by $PV = \frac{R}{i}$, where $R$ is the periodic payment and $i$ is the interest rate per period. In contrast, a sinking fund is a deliberate savings plan where regular deposits are made into an interest-bearing account to accumulate a specific target amount by a future date — for example, setting aside money each month to repay a bond or replace equipment. Understanding both conce …