I can't quite see how writing it as a sum makes it easier?
E.g. if we have an annuity that pays 5 in arrears for 10 years, what's the best way for finding the DMT?
If I write it out as a sum, I get 5v + 5v^2 + 5v^3 + ... + 5v^10, and differentiating I get 5 + 10v + 15v^2 + ... + 50v^9. But surely this can't be equated into a simple geometric progression? I would say it's easier to write out the annuity as (1 - v^10) . i^-1 and then use the quotient rule for differentiation. But maybe I can't see the glaringly obvious..
edit: in fact, I guess I could write it as a sum of a level annuity and an increasing annuity! And hence I see why you wrote that in your post! Uff..at least I realised for myself
edit again: oops, I see that I differentiated wrt v and not i. But I guess the principle is still there.
final edit (I promise!): Am I right to assume all level annuities of coupon D (ignoring redeemable value) of time T, differentiate to Dv (Ia)T| ?
Last edited by a moderator: Sep 27, 2010