Introduction
Ad Infinitum is a Latin phrase which means ‘to infinity’. In financial terms, the phrase is associated with perpetuity, in which the returns derived at fixed intervals from an asset are assumed to go on forever or ad infinitum.
Understanding Ad Infinitum
Returns received ad infinitum do indeed go on a very long time. However, one has to realise that the present value of those far off returns is negligible due to the time value of money. Thus, the present value of another annuity (i.e., one with a fixed end) of 50 years is not very much lower than that of perpetuity whose returns go on forever.
