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Construct a price function and the derivative definition

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Reference no: EM131782033

Suppose you have a perpetuity with the first payment of 1,204 made at time t=1. Each successive payment is increased by 1.1%. (So the payment stream will look like X, X(1+k), X(1+k)2, with the first payment at t=1). Find the value of the modified convexity at an annual effective rate of i = 4.4%. Round the answer to three decimal places. You must construct a price function and the derivative definition of convexity to calculate the answer.

Reference no: EM131782033

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