Turner Lambert
12/16/2023 · Senior High School
\[ \left(\frac{1}{\sum_{k=1}^{n} C_{t_{k}} v_{i} t_{k}}\right)\left(\sum_{k=1}^{n} C_{t_{k}} t_{k}\left(t_{k}+1\right) v_{i}^{t_{k}+2}\right) \] Question Consider a share that pays a dividend of \( D \) annually in arrears in perpetuity. Derive an expression for the convexity of the share's cashflows, in terms of the annual effective interest rate \( i \). Solution
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The convexity of the share's cash flows in terms of the annual effective interest rate \( i \) is given by the expression \( \frac{2(1+i)^2}{i^2} \).
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