Answer:
B. the weighted average time to maturity of the bond's cash flows
Explanation:
[tex](\sum^n_{t=1} \frac{t \times C}{(1+i)^t}+\frac{n \times M}{(1+r)^n} ) /V[/tex]
t = time to maturity
r = required return
C = coupon payment
M = maturity
V = market value
Frm the duration formula we can notice there is a weighted average as there is a sum of the coupon payment which is latter divide over the bonds market value
Answer:
The correct answer is letter "B": the weighted average time to maturity of the bond's cash flows.
Explanation:
Duration measures the exposure of a fixed-income to interest rate changes. Duration is a complex measure but it is standard knowledge supplied with mutual bonds and bond funds. Duration basically shows how long it will take for a fixed-income investment to repay the invested principal before interest payment is generated.
When it comes to bonds, duration would measure the time it takes for a bond to generate income out of the interest rate until the maturity date arrives.
