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Hi sir,
What is the logic behind duration being the period it takes to recoup 50% of your investment?
From a practicle point of view, if I invest 1000 pounds in a project the main interest for me would be to know when I will recover my full 1000 pounds not my 500 pounds.Why use 50% and not 100%?
With its own weaknesses considered, I would therefor think payback period adds more value to decision making in investment appraisal than duration because it gives the time it takes to recover the whole investment.
I’m i missing something?
It is only approximately 50% (and to go through the proof of that is unnecessary and would waste time).
For pure project appraisal, what you say is true (and would be useful to mention in any comments). However, the main use really is when it is used for bonds as a way of measuring the sensitivity of changes in the market value to changes in interest rates.
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