DMT exercise. Chapter 14 page 27 (of Sure's notes)

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asked Oct 18, 2016

The solution gives DMT(i=5%) = 7.54.

From what I understand, 7.54 is the answer to the volatility and not the DMT.

This is because 7.54 is the solution to substituting 5% into the DMT formula on the previous page (which is calculated by differentiating the PV wrt delta). Shouldn't 7.54 be multiplied by (1+i)=1.05 (the Jacobean) if we want to substitute i directly into that DMT formula in order to calculate the true DMT rather than merely the volatility.

Also, it is given in the notes that DMT(delta)=Vol(i)(1+i).

Are the solutions wrong? If not, please explain to me where I am getting confused.

Thanks!

$$(C/(P*i) )*\ddot{a}_{\bar{n|}i} + n*(1 - C/(P*i) )$$