An investment makes payments at the end of each year into perpetuity. Assume that the payments increasing by 2% each year. Using an annual effective interest rate of 5%, calculate the Macaulay duration of this investment in years.

An investment makes payments at the end of each year into perpetuity. Assume that the payments increasing by 2% each year. Using an annual effective interest rate of 5%, calculate the Macaulay duration of this investment in years.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

An investment makes payments at the end of each year into perpetuity. Assume that the
payments increasing by 2% each year.
Using an annual effective interest rate of 5%, calculate the Macaulay duration of this
investment in years.
Possible Answers
A 27
B
35
c 44
D 52
E 58

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