# effective amount of stock purchased

Schweser formula for effective amount of stock purchase while equitizing cash is: (# of contracts x multiplier) divided by (1+ div yield) ^t However, should the numerator also contain Pf i.e. futures price?

no it shouldnt, you are trying to figure out number of stocks

well in the example on the next page, they use the futures price in the formual to come up with the maount equitized.

the next page is the amount i believe. in your first post on this threat you are talking about the number of stock UNITS not value.

yea i was confused by this as well I think schweser states the formula as (# of contracts x multiplier) divided by (1+ div yield) ^t; however I thought in an example it did include pf. Schweser states that it is effective amount of stock purchased, I think it is an amount not # of stocks CSK and that’s why you do not include the price? Anyone else?

When do you include the dividend yield and when do you include the risk free rate?

I would think the numerator would need to include the Pf. Otherwise you just have an arbitrary number representing the number of contracts.

jimmylegs, when calculating #(!) of stocks you take into account divident yield when calculating effective amount(!) of stocks you take into accoutn Rf rate

what is Pf?

Pf= price of future

ahhh. ok

so are these the two formulas?: number of shares: (# of contracts x multiplier) / (1+ div yield) ^t Dollar amount of shares: (# of contracts x multiplier x Futures Price) / (1+ Rf) ^t

Yes, that’s what I would use.

Are we sure on this I don’t remember seeing this anywhere and it doesnt make any sense to me why we would use rf for one and dividend yield for the other?

rf cuz that’s what futures grows at and dividend becuase that’s what stock prices can earn while you hold them… its right and explained well in both schweser and CFAI texts.

You are not figuring this out for futures you are figuring it out for the stock \$ amount equilvalent and # of shares equilvalent by using futures. this is confusing me I have to look at the books.

3rd & Long Wrote: ------------------------------------------------------- > so are these the two formulas?: > > number of shares: (# of contracts x multiplier) / > (1+ div yield) ^t > > Dollar amount of shares: (# of contracts x > multiplier x Futures Price) / (1+ Rf) ^t wow this seems to be true. I didnt even notice the different denominator but looking at schweser text and example on page 115 and 116 this seems to be the case.