CFA CFA Level 2 Valuing a Forward Contract Prior to Expiration

Valuing a Forward Contract Prior to Expiration

  • This topic has 4 replies, 3 voices, and was last updated Sep-18 by googs1484.
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    • wannabe1988
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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!

    • wannabe1988
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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?? 

    • rsparks
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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).

    • wannabe1988
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      Thanks rsparks!

    • googs1484
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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.

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