Why is it the dividend of £2.80 was forwarded to the 3rd month before first discounting it to t=0 so that we can subtract with 60 first before accumulating. I first discounted it and my answer is 58.53008239 and the exam answer is 58.09 without discounting first
The formula to use here is the standard formula (S0 - I)*e^(delta*T). Here: S0 = 60 I = present value of the income = 2.8*e^(-0.06*2/12) e^(delta*T) = e^(0.06*3/12) This gives: (60 - 2.8*e^(-0.06*2/12))*e^(0.06*3/12) = 60*e^(0.06*3/12) - 2.8*e^(0.06*1/12)) as the accumulation and discounting partially cancel out.
