A 20-year annual annuity with a yield of 7% has a duration of ________ years.Question 4Select one:a.11.33b.7.77c.15.14d.8.32
Question
Solution 1
The duration of an annuity can be calculated using the formula for Macaulay Duration for an annuity:
D = (1 + r) / r - ( (1 + r - nr) / (r(1 + r)^(n-1)) )
where: D = duration r = yield or interest rate n = number of periods
In this case, r = 7% or 0.07 and n = 20 years.
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