Why should I choose AnalystNotes?
AnalystNotes specializes in helping candidates pass. Period.
Basic Question 4 of 9
A security is currently trading at $97. It will pay a coupon of $5 in two months. No other payouts are expected in the next six months. Assume monthly compoudning at 12%. What should the forward price be on the security for delivery in six months?
User Contributed Comments 8
| User | Comment |
|---|---|
| maryprz14 | No idea!!!!!!!!!!! :( |
| dbedford | F = (S - PVben)[(1+rf)x(compound freq)]^compound freq PVben = ben/[(1+rf)freq]^freq |
| khalifa92 | very nice !!! |
| khalifa92 | you have to discount the dividend to the same period of S0 subtract dividend from S0 because its lost benefits then monthly compound the value to the future |
| khalifa92 | for clarification: the solution can be solved in two ways: 1- u can discount the divided to reach at time 0 subtract it from S0 then compound to the future 6/12 2- u can compound S0 6/12 and then subtract dividend compounded with 4/12 |
| umesh2802 | why we r adjusting for frequency |
| jzty | The way to compound is not right, and everything else is ok. |
| chris21Feb | if compounded monthly, then why is the PV of Dividend not 5 / (1.01)^2 ? |
I just wanted to share the good news that I passed CFA Level I!!! Thank you for your help - I think the online question bank helped cut the clutter and made a positive difference.
Edward Liu
Learning Outcome Statements
explain the difference between the spot and expected future price of an underlying and the cost of carry associated with holding the underlying asset
CFA® 2025 Level I Curriculum, Volume 5, Module 4.