# equity forward contracts-continous dividends-stupid question

it might be a stupid question, but i really do not understand why when we want to calculate a price of a forward on an equity index we do e^(Rf - cont. compounded dividend yield)*T Why is it Rf MINUS the cont. compounded dividend yield. why minus?? Or when calculatin the value of the forward contract we have: S/ (e^cont.comp. dividend*(T-t) - FP/(e^Rf*(T-t). Hope you understand the question. It just confuses me why especially when calculatin the price its Rf - cont.comp. div.)

you are getting dividends back from the index. So you discount them back to the current period. So you have e^(rf*T) ==> return due to the risk free rate. and e^(-rdc*T) ==> the present value of the continuous dividend you are removing.

it confuse me for a while – but hope this info help u get over it Let’s assume So - PVD = So/e^(cont.comp. dividend*T) If you solve for PVD, you will see that PVD = Divident @ time T / e^(cont.comp. dividend*T) or Dividend @ time T = PVD x e^(cont.comp. dividend*T) Or if you work from So-PVD – you will see it why