Banner Ad 1

Collapse

Announcement

Collapse
No announcement yet.

Kellison 9.8 #22 and #24 (Algebra Questions)

Collapse
This topic is closed.
X
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Kellison 9.8 #22 and #24 (Algebra Questions)

    9.8 Duration
    For 22 it asks you to show that lim i-->infinity d is equal to the point in time at which the first payment is made. (I think the answer here is 1)

    For this one I expanded the numerator and denominator of the duration definition and attempted to take the limit as i --> infinity, I find this troublesome however because I left with 1(0)R1 + 2(0)R2 + ....... + N(0)RN all over (0)R1 + (0)R2 + ...... + (0)RN How do I find the limit...?

    For 24 it asks to Find the duration of a common stock which pays dividends at the end of each year, if it is assumed that each dividend is 4% greater than the prior dividend and the effective rate of interest is 8% (Ans 27)

    I am positive I set up the expression correctly, but I do not know how to derive a simpler expression..
    I have duration = (v + 2v^2 (1.04) + 3v^3 (1.04)^2 + .....) / (v + v^2 (1.04) + v^3 (1.04)^2 ....) Somehow I need to incorporate the growing annuity formula (Ia)n with n=infinity.... I'm lost here

    Any help is appreciated.
Working...
X