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An investor buys a perpetuity-immediate providing annual payments of 1, with an annual effective interest rate...

An investor buys a perpetuity-immediate providing annual payments of 1, with an annual effective interest rate of i and Macaulay duration of 17.6 years.

Calculate the Macaulay duration in years using an annual effective interest rate of 2i instead of i.

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Answer #1

Solution:

The Macaulay duration of such perpetuity = = =

Given that Macaulay duration is 17.6 years with annual effective interest rate of i. So,

Now we have to calculate the Macaulay duration in years using an annual effective interest rate of 2i instead of i

So, Macaulay duration = = = years.

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