CFA CFA Level 2 Valuing a Forward Contract Prior to Expiration

Valuing a Forward Contract Prior to Expiration

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    • Avatar of wannabe1988wannabe1988
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        • CFA Level 1
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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!

      • Avatar of rsparksrsparks
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          • CFA Level 2
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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).

        • Avatar of googs1484googs1484
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            • CFA Level 3
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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.

          • Avatar of wannabe1988wannabe1988
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              Thanks rsparks!

            • Avatar of wannabe1988wannabe1988
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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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