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Assume you have a liability with three required payments: $3,000 due in 1 year; $2,000 due...

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Finance

Assume you have a liability with three required payments: $3,000due in 1 year; $2,000 due in 2 years; and $1,000 due in 3years.

(a) What is the Macaulay duration of this liability at a 20%(annually compounded) rate of interest? (b) What about at a 5%(annually compounded) rate of interest?

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a Macaulay duration 20 or 020 interest ratei annually Years Cash flow Present value P V factor 11in Present value P V of cash flow Cash    See Answer
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Transcribed Image Text

Assume you have a liability with three required payments: $3,000due in 1 year; $2,000 due in 2 years; and $1,000 due in 3years.(a) What is the Macaulay duration of this liability at a 20%(annually compounded) rate of interest? (b) What about at a 5%(annually compounded) rate of interest?

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