Why should I choose AnalystNotes?
AnalystNotes specializes in helping candidates pass. Period.
Basic Question 0 of 14
Continue with the example in question 1. Consider a stock priced at $65, which will pay a dividend of $0.75 in 50 days and another $0.75 in 100 days. The risk-free rate is 6.4%. Suppose the investor enters into the contract that expires in 150 days at $65.16. Now, 55 days later, the stock price is $60. What's the value of the forward contract at this point?
User Contributed Comments 2
| User | Comment |
|---|---|
| danlan2 | The first payment is irrelevant, so PVD=0.75/1.064^(45/365)=0.74 V=60-0.74-65.16/1.064^(95/365) |
| yly14 | if a dividend is to be paid at t=100, and the forward is for t=80, the present value of the dividend is considered in the valuation. But if a foward contract's value is to be calculated before expiration but after a dividend payment, this payment is not considered. |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
describe how equity forwards and futures are priced, and calculate and interpret their no-arbitrage value;
CFA® 2025 Level II Curriculum, Volume 5, Module 31.