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Thread: General question about the forward prices

  1. #1
    Actuary.com - Level III Poster
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    General question about the forward prices

    Hi everyone,

    Can some one please tell me how do calculate the forward price and prepaid forward price for a stock with the discrete dividends. Please help. I know it is very basic question. But I am getting wrong answer for one question.

    Thanks in advance
    :smiloe: :confused-:

  2. #2
    Actuary.com - Level II Poster Akki's Avatar
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    Forward price of a stock with discrete devidend is

    (Current price - Present value of dividends)

    For prepaid forward price discount the above formula i.e. multiply with e^-rt.
    ADVERSITY CAUSE SOME MEN TO BREAK,
    OTHERS TO BREAK RECORDS.:coolman:

  3. #3
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    Quote Originally Posted by Akki View Post
    Forward price of a stock with discrete devidend is

    (Current price - Present value of dividends)

    For prepaid forward price discount the above formula i.e. multiply with e^-rt.
    Actually, (current price minus present value of the dividends) is the prepaid forward price (what you pay now to get the stock in the future); to get the forward price, you convert it to future value by multiplying by e^rt.

  4. #4
    Actuary.com - Level II Poster Akki's Avatar
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    Quote Originally Posted by mmailliw View Post
    Actually, (current price minus present value of the dividends) is the prepaid forward price (what you pay now to get the stock in the future); to get the forward price, you convert it to future value by multiplying by e^rt.
    You are right, thanks for correcting my mistake.
    ADVERSITY CAUSE SOME MEN TO BREAK,
    OTHERS TO BREAK RECORDS.:coolman:

  5. #5
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    Thank you so much for the reply. it really helps me.
    :smiloe: :confused-:

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