FMP-Valuations of Forwardss
Finance Junkie
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FMP-Valuations of Forwardss

Postby » Tue Mar 12, 2013 4:14 pm

can anybody explain the concept of the formula (so*e^-qt--K*e^-rt) and why is R negative.

Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

FMP-Valuations of Forwardss

Postby content.pristine » Thu Mar 14, 2013 7:53 pm

R is the interest rate. It is not negative, but there is a negative sign infront of it.
The second part of the equation is taking the present value of "K".
Negative indicates discounting to the present. Positive indicates compounding to the future.

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