synthetic cash

[derswap07]

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

 

[June06]

Cash -> Risk free rate

 

[S2000magician]

derswap07 wrote: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

We convert to cash immediately, then that cash grows at the risk-free rate.

 

[derswap07]

We have an equity portfolio which will grow at didvidend yield.We are creating synthetic cash position. We still are going to hold equity???!!!

 

[S2000magician]

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-inc...