Homework Answers
Duration of the plan's obligation
|
Year (1) |
Annual Payments ($ in Millions) (2) |
PVIF at 17% (3) |
Present Value (4) = (3) x (2) |
Weight (5) |
Duration (6) = (1) x (5) |
|
1 |
4.00 |
0.85470 |
3.42 |
0.34253 |
0.3426 |
|
2 |
3.00 |
0.73051 |
2.19 |
0.21957 |
0.4391 |
|
3 |
7.00 |
0.62437 |
4.37 |
0.43790 |
1.3137 |
|
$9.98 |
1.0000 |
2.0954 |
|||
“Therefore, the duration of the plan's obligations = 2.0954”
NOTE
-The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)n], where “r” is the Discount Rate/Cost of capital and “n” is the number of years.
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