Questions 1:
Why do we discount dividends at Rf when pricing a forward on stock. For example take a look at example 2 page 30. Is this realy a price that earns the seller the risk free rate? There is a chance they do not get the dividends?
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Questions 2:
a commodity trades at a spot of $100
rf=10%
future val of convenience yeild=$3
according to CFAI, such on page 96
the one year futures price should be
(100*1.1)-3=$107
well wait! if the futures price is 107
a short seller can get $100 now
enter long into the futures
invest at rf for a year and have $110
settle the futures for 107 and net $3 ?????
this would keep happening till the price is 110 ??? |