So I’ve just had a look at the answer.
If you want to buy a share in future (forward contract) then the value you are willing to pay is the expected price less any dividends you are not going to receive. That’s what you do for part (i).
This idea comes from the ideas that:
Current Share Price = EPV(Forgone Dividend) + EPV(Future Share Price)
If you want to buy a share and also want the income that was forgone via dividends paid, instead of buying one share you’ll buy one share and a number of units equivalent to the proportion of dividends paid. This is then just the expected value of the share.
Consider a simple case where we have a share currently worth R1000 and we want to enter a forward contract. Let’s say the yearly risk free rate is 5% and that the share will pay a dividend of 10% in 6months time.
The fair price would be the expected price (R1050) less expected dividends paid (R105). So you would be willing to pay R945.
If you’re told that the dividends are reinvested then you would pay for the expected share value R945 and the expected reinvested dividend R105. Which would give you the R1050.
Correct me if anything I did seems fishy.