Q on equity forward contracts stock, equivalent, discounted, forward

Sunshine4ever

CFAI text Reading 60 page 28:

"the stock price discounted at the dividend yield rate is equivalent to the stock price minus the present value of the dividends."

Could someone kindly prove how this is true? Answer in mathematical or verbal explanation would both be appreciated.

Thank you

RepoToronto

My mind is completely blank from level 1... Given the interest rate and the dividend amount, how do we calculate the dividend yield rate? Extremely sorry about the dumb question...

President1988

I havent gone over this section of the book yet, so Im a bit unsure of the specific answer your looking for. However, the dividend yield rate or simply "dividend yield", is the amount of the dividend over the stock price. Im assuming they would give you both amounts for the question. Hope this helps a bit.

lucasg85

But in the above equation, the stock price is not discounted by the dividend yield rate, it's still discounted by the interest rate, r...

wxs1986

you could use the dividend yield rate, that would be the appropriate discount rate for the risk profile

jarobi04

Stock price at time (t) = [Stock price at time (t+1) + dividend] / (1+r)

rearranging

S(t+1) / (1+r) = S(t) - [dividend / (1+r)]