What is the primary characteristic of a perpetuity?

The primary characteristic of a perpetuity is that it consists of an infinite series of equal payments made at regular intervals. This means that the cash flows continue forever, without any predetermined end date. This concept is significant in finance because it simplifies the valuation of cash flows, allowing analysts to calculate the present value of a perpetuity using a straightforward formula: the annual payment divided by the discount rate.

In contrast, options that mention a finite term of payments, variable payment amounts, or a single payment at the end of a term are not reflective of how perpetuities function. A finite series of payments indicates a bond or loan with a maturity date, variable payments eliminate the uniform nature essential to a perpetuity, and a single payment suggests an annuity that ends after one payment period. Each of these alternatives fundamentally differs from the definition and properties associated with perpetuities, emphasizing the importance of the continuous cash flow characteristic.