Question

In: Finance

If a perpetuity that pays 105 once a year, what is its Macaulay duration? Assume a...

If a perpetuity that pays 105 once a year, what is its Macaulay duration? Assume a 10% yield.

A. 9

B. 12

C. 10

D. 11

Solutions

Expert Solution

The correct answer is D.11

Duration of a Perpetuity = (1 + YTM) / YTM

YTM or Yield to Maturity = 10% or 0.10

Therefore Duration

= (1 + 0.10) / 0.10

= 1.10 / 0.10

= 11


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