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Sir John, I’m still unable to comprehend the logic/reasoning behind the Multiplication of PV of Cash Cashflow with the time period…. I mean why is it done? Study text says for weighted average and It’s unclear to me that how is that a weighted average. Can you please elaborate the reason?
It is a weighted average because instead of just calculating a normal average time, it is attaching different ‘weights’ to each year (by multiplying by the relevant year).
Its purpose is to be able to compare the sensitivity of the market values of different bonds to changes in future interest rates.
(Have you watched my free lectures on this?)
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