What is a Forward Price? Definition & Formulas

If the spot price of an investment asset is So and the futures price for a contract deliverable in T years is Fo, then:

                 Fo = Soe^rT

Fo = Forward Price

So = Spot Price

r   = 1 Year Risk Free Rate

T  = Number of Years

Currency Forward Prices

When calculating currency forward rates, both risk free rate and foreign currency risk free rate should be taken into account.

Fo = Soe^(r – rf)T

Fo = Forward Price

So = Spot Price

r   = Risk Free Rate (local)

rf  = Risk Free Rate (foreign)

T  = Number of Years

Equity Forward Prices

Equity (or a stock index) Forward is analogous to a currency forward. The continuous dividend yield replaces the foreign risk-free interest rate.

Fo = Soe^(r – d)T

Fo = Forward Price

So = Spot Price

r   = Risk Free Rate (local)

d  = Dividend Yield

T  = Number of Years