What is a perpetuity?

A perpetuity refers to an investment or financial instrument that continues indefinitely without a fixed end date. This means that it pays a consistent stream of cash flows or dividends forever, making it distinct from other financial products that have a defined term or duration, such as loans or annuities. The concept of perpetuity is significant in finance because it allows for the calculation of present value using the formula for valuing a stream of cash flows that lasts indefinitely.

In contrast to other options: loans have a specific repayment schedule, annuities are defined by their limited time frames, and limited duration financial tools inherently do not provide the infinite cash flow characteristic that defines a perpetuity. Thus, the nature of a perpetuity as an ongoing investment with no termination point is what makes it the correct definition in this context.