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Basic Question 0 of 2
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. |
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Learning Outcome Statements
describe how interest rate forwards and futures are priced, and calculate and interpret their no-arbitrage value;
CFA® 2025 Level II Curriculum, Volume 5, Module 31.