# Valuing forward

Hi guys,

I came across this question on currency forward valuation

And here is the question:

Based on Exhibits 2 and 3, and assuming annual compounding, the per share value of Troubadour’s short position in the TSI forward contract three months after contract initiation is closest to:

1. \$1.6549.
2. \$5.1561.
3. \$6.6549.

I tried to solve the the question by using the formula St - F0/(1+r)^(T-t). St is 245, F0 is 250.562289, r is 0.00325 and T-t is 0.5. I ended up getting B. But the correct answer is C. Can someone please explain why I didn’t get C?

P.S. the numbers on the top of the image are from Exhibit 2, all information related to this question has been included.

It appears that you failed to deduct the present value of the dividend from the market price of \$245.

Hi, thanks for the reply! I tried to deduct the pv of dividend (1.5/1.00325^0.25) from 245 and that gave me 7.06107, all else equal. Guess something is off.

I’m not sure how you’re getting that.

If you add the present value of \$1.50 to answer B, you get answer C, don’t you?

Oh I see, made a typo on the calculator. But can you please also explain why pv of dividend should be deducted from market price of the share? I’m really confused any insight will be greatly appreciated!

If you own the stock, you get the dividend; if you only own the forward, you don’t. The market price of the stock includes the value of that dividend.

Thank you so much!

My pleasure.