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Since duration is the average time to recoup initial investment, why in the duration formula, I cannot see any variables regarding initial investment. Does it mean recoup $1 and $1m take the same average time?
Thanks.The duration is used for fixed interest bonds etc. and its the average time to pay the interest and principal (which is not quite the same as what you have said). The interest and principal are both obviously based on the initial investment (principal).
How about the duration for project, pls? Assuming the project can break even by pay back method in 5 years, however till 10-20 years, the project can still generate profit. How many years to use for calculating duration, pls? Thanks.
Macaulays duration is not for projects but for bonds etc..
For projects you could use payback period, but that is completely different.
Two of my lecturers said duration can be used for project, use the project life given by question, I just want to study further. The question can be set as why payback is no good, therefore replaced by discounted payback, or by duration, which is recent development.
For exam purpose, I just accept project life given by the question. But I feel that it may be like IRR, by trial & error, to adjust one more/less year till NPV=0, then use that ‘adjusted project life’ to calculate duration.
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