Just wondering why we are using risk free rate to calculate Fv of equity position? Shouln’t we use dividend yield to calculatue future value of equity in this formula ? :
NF = -V ( 1+r) T / qf
Cash -> Risk free rate
We convert to cash immediately, then that cash grows at the risk-free rate.
We have an equity portfolio which will grow at didvidend yield.We are creating synthetic cash position. We still are going to hold equity???!!!
Yes; we still hold equity. And a bunch of futures contracts that are supposed to cancel out that equity.
Maybe this article that I wrote will help: http://financialexamhelp123.com/the-synthetics-cash-equity-and-fixed-income/