How is liquidity duration calculated?

Liquidity duration is an important concept that provides insight into how quickly an asset can be converted into cash without significantly affecting its price. The correct method for calculating liquidity duration involves understanding both the number of shares and the market's trading activity.

The calculation described by the answer combines the number of shares in circulation with the percentage of daily trading volume. Specifically, by dividing the number of shares outstanding by the percentage of daily trading volume, one can estimate the time it would take to sell the entire position without causing a notable decline in the asset's price. This approach considers market depth and the characteristics of market liquidity, which are essential in assessing how quickly an asset can be traded.

The other options do not reflect the method used to calculate liquidity duration. For instance, simply calculating the market price times the number of shares outstanding focuses on total market capitalization rather than the dynamics of liquidity. Similarly, using the volume of trades over a given time period provides insight into trading activity but does not link directly to the individual asset's liquidity profile. The first choice concerning outstanding shares and market cap is similarly not relevant to the specific calculation of liquidity duration, as it does not take into account trading dynamics effectively.

Therefore, the approach stated in the correct answer directly focuses on the relationship