a Latin phrase that means “to infinity,” or forever.
Ad Infinitum Details
Ad infinitum is a term that has uses in a wide variety of contexts. In finance, it is considered synonymous with perpetuity or periodic payments made for an asset without end. As opposed to more traditional terms, fees for certain financial products never mature or expire, and some types of cash flows keep coming forever.
It is accurate to say that ad infinitum payments continue for lifetimes. However, we should note that with the time value of money, the current value of payments is trivial five decades on. Therefore, the present value of a typical fixed, fifty-year annuity is not significantly lower than that of perpetuity, where one makes payments ad infinitum.
Within the financial industry, ad infinitum can also refer to any non-terminating or endlessly repetitive process. Investment algorithms, information technology, and big data are all constant users of never-ending loops. The principle itself is tied around several mathematical operations, making it compatible with computation-centric markets within the financial industry, especially economics.
Real-World Example of Ad Infinitum
We can see the principle of ad infinitum in everyday life. For example, the sun rises and sets each day, ad infinitum. In day-to-day counting, numbers carry on from 1, 2, 3, and so on, ad infinitum. In insurance, annuity products guarantee cash flow, ad infinitum.
Certain fields of study also apply the principle of ad infinitum. In physics, astronomy, and cosmology, many believe our universe is one of an ever-increasing number of universes where time, space, and matter are rearranged over and over to infinity. This is known as the Big Bang Theory, developed by famous scientist Georges Lemaître in the late 1800s. Additionally, regardless of the events on this planet, it keeps rotating around its axis with eternal constancy.
Even as human beings, we are constantly evolving physically, mentally, and in every other way. In death, some believe that we never really die but simply exist in another dimension where life goes on ad infinitum. While many others contest this position, it is the majority’s belief and gets infinitely passed down from generation to generation.
Significance of Ad Infinitum
Ad infinitum can hold a unique significance for each area or field that uses the principle. For example, after careful analysis of the performance of a business over a certain period, an ad infinitum cash flow prediction can provide a sense of stability. The same benefit is possible with bonds that yield the same interest rate to eternity.
However, ad infinitum cash flow can only remain a forecast instead of a fact, regardless of the computation accuracy. This is because there is no way of scientifically predicting nor preventing obstacles—for example, acts of God—that can render a prediction moot.
Also, even with ad infinitum payments retaining their numerical values forever, their financial values are bound to vary as the years roll on. After all, we have not designed such payouts to compensate for the expected decline in the value of money.