9-105 Calculate the duration of the assets.
A)2.54 years.
B)4.375 years.
C)1.75 years.
D)3.08 years.
E)2.50 years.

Question

Quizplus · Accepted Answer

The duration of the assets is the weighted average of the time until each asset's cash flows are received. The weights are the present values of the cash flows. The duration of the assets is calculated as follows:Duration = (PV1 * T1 + PV2 * T2 + ... + PVn * Tn) / (PV1 + PV2 + ... + PVn)where:PV1, PV2, ..., PVn are the present values of the cash flows from each assetT1, T2, ..., Tn are the times until each asset's cash flows are receivedn is the number of assetsIn this case, the present values of the cash flows from each asset are:PV1 = $100PV2 = $50PV3 = $25PV4 = $12.50PV5 = $6.25The times until each asset's cash flows are received are:T1 = 1 yearT2 = 2 yearsT3 = 3 yearsT4 = 4 yearsT5 = 5 yearsThe duration of the assets is calculated as follows:Duration = (100 * 1 + 50 * 2 + 25 * 3 + 12.50 * 4 + 6.25 * 5) / (100 + 50 + 25 + 12.50 + 6.25) = 2.54 yearsTherefore, the correct answer is A.

9-105 Calculate the Duration of the Assets