What defines a perpetuity?

A perpetuity is defined specifically as a stream of equal payments that continues indefinitely, meaning the payments do not have a specified end date. This concept is commonly used in finance when evaluating cash flows, investments, or bonds that pay a fixed sum regularly without any termination. The enduring nature of the payments allows for a straightforward calculation of their present value using the formula PV = C / r, where C is the cash payment per period and r is the discount rate. This model assumes that the cash flows will persist indefinitely, which is crucial for understanding valuations in finance.

In contrast, the other choices describe different types of cash flows or payment structures that do not fit the definition of a perpetuity. For instance, fixed-term payments would have a clear endpoint, while variable or decreasing payments indicate changes over time, which are not characteristics of a perpetuity.