 # basic futures spot question

For futures on stock, if you have dividend you subtract the PV of Dividend (PVD) from the Spot price and then times the (1+ Rf)^n 1) So FP = (Spot - PVD)(1+Rf)^n So dividend decrease the value of the futures price. In Schweser’s explanation it says "An increase in the growth rate in dividend for stocks would increase the spot price of the equity index. As the spot price increases, the future price for a given maturity also increases (holding interest rates constant). Isn’t it if the Dividend increases (PVD also increases) it’ll decrease the FP? And why would Spot price increase when dividend increase? 2) This seems like a basic question and I think I’m just lacking a principle understanding of futures. Is this logic correct? Long the futures contract has the obligation to buy the underlying asset at the fixed determined price. So someone who longs a futures contract on the equity stock doesn’t have the stock yet. The seller has the stock so (if it is dividend paying) the dividend decreases the price of the futures b/c the seller is getting compensated for holding asset.

1. growth rate in dividends is “g” from DDM. you know price (Spot) should go up when growth goes up. futures/forward price should go up because Spot in the formula should go up, PVD is present value of dividends between now and value date of the future it is not PV of all future dividends like in DDM. 2. you are correct, all (linear) derivatives are based on arbitrage-free pricing. You use existing instruments (stock and bond/some financing instrument) to create the futures equivalent. Borrow money, buy stock, receive Div, repay money - this is the formula.
1. … argh… I think my brain is fried… such… simple logic… and I didn’t see it…