If an N year security recovered the same percentage of its cost in PV terms each year,the duration would be
A)N.
B)0.
C)sum of the years/N.
D)N!/N2.
E)None of these choices are correct.

Question

Quizplus · Accepted Answer

Duration is a measure of the weighted average timing of the cash flows from an investment, taking into account the present value of each cash flow. If an N year security recovered the same percentage of its cost in PV terms each year, then the cash flows would be evenly spread out over N years. Therefore, the duration would be the sum of the years (1 + 2 + 3 + ... + N) divided by N, which simplifies to (N+1)/2.

If an N Year Security Recovered the Same Percentage of Its