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Bruce has just been fired as CEO at the beginning of 2019. As consolation the board of directors give Bruce a consulting contract that pays
Bruce has just been fired as CEO at the beginning of 2019. As consolation the board of directors give Bruce a consulting contract that pays him $1,500,000 at the end of each year for 5 years.
(a) What is the duration of this contract if Bruce s personal discount rate is 9%?
(b) What is the change in the contracts present value for a 0.5% increase in Bruces discount rate?
(c) Use duration to calculate the change in the contracts present value for a 0.5% increase in Bruces discount rate? How is the answer different from that in part (b)?
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