Hi guys, need some clarifications on the yellow highlight part. Why do we need to discount the settlement payment for two months? Couldn't figure it out... Thanks!

correct. it is the present value of the contract expiration discounted back to the value of today's offsetting contract (four months into the original contract).

this will make much more sense to you once you get to derivatives too. Looks like you get it but youll see that discounting back to PV a lot more in SS 16.

A CFA Level 2 Discussion About Valuing A Forward Contract Prior To Expiration

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This topic has 4 replies, 3 voices, and was last updated Sep-188:27 pm by googs1484.

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- wannabe1988
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  - CFA Level 1
  06 Sep 2018 at 2:57 pm
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  Hi guys, need some clarifications on the yellow highlight part. Why do we need to discount the settlement payment for two months? Couldn’t figure it out…
  
  Thanks!
- rsparks
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  - CFA Level 2
  06 Sep 2018 at 3:07 pm
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  correct. it is the present value of the contract expiration discounted back to the value of today’s offsetting contract (four months into the original contract).
- googs1484
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  - CFA Level 3
  06 Sep 2018 at 8:27 pm
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  this will make much more sense to you once you get to derivatives too. Looks like you get it but youll see that discounting back to PV a lot more in SS 16.
- wannabe1988
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  - CFA Level 1
  06 Sep 2018 at 3:19 pm
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  Thanks rsparks!
- wannabe1988
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  - CFA Level 1
  06 Sep 2018 at 2:58 pm
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  ahh wait, is it because they are computing the present value of the offsetting position in two months time using Libor -60??
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