In: Finance
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
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