Looking at Book 4 Schweser, pages 92-95 has me confused…

Both caclulaions (answer 2.a & answer 2.b) use a variation of the IRP forumla to arrive at the value of the formula. But in the second forumla, you have to take a second step and PV the difference to arrive at the final answer, while in the first answer no final PVing step is required.

Yeah, the way I think about it is that the value to the long is the current no arb foward price (So*((1+d)^t/(1+f)^t)) minus the foward price he locked into, with that difference PV’d back to present.

there is no multiple pving back to the initial point if you do it my way.

St (new spot rate) / (1+rf)^t - F (Original Forward Price) / (1+rd)^t is it.

and t = 2 months. e.g. if Original Time Period (say 3 months to start with) and now you are evaluating it at 1 month into contract and St = Spot Rate at 1 month into the contract.