Answer:
C. 2.45
Explanation:
Pv of cash flow
1000x9%/(1+0.12)
= 90/1.12
= 80.36
Weight = 1
Weighted pv of cash flow = 80.36
Pv of cash flow
= 1000x9%/(1+0.12)²
= 90/1.2544
= 71.75
Weight = 2
Weighted pv of cash flow = 71.75x2
= 143.5
Pv of cash flow
= (1000+1000*9%)/(1+0.12)³
= 1090/1.404928
= 775.84
Weight = 3
Weighted pv of cash flow
= 775.84x3
= 2327.52
Total pv of cash flow = 80.36+71.75+775.84
= 927.95
Total weight of cash flow pv =
80.36+143.5+2327.52
= 2551.38
Duration = weighted pv/pv
= 2551.38/927.95
= 2.75
Modified duration =
Duration/1+0.12
= 2.75/1.12
= 2.45
