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By non-arbitrage, you buy the stock and hold it to the delivery date of the forward, only cost of funding (of cash) and equity dividend would be involved in the equity forward calculation. Where does cost of borrow come into play?

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If you have an asset you can generally fund it cheaper via repo than you could via an uncollateralized loan; that decreases the cost and thus the forward price.

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  • $\begingroup$ Of course you can "borrow from yourself" instead of doing Repo. But the cost of Repo provides a good estimate of the opportunity cost of using your own cash as well. $\endgroup$
    – nbbo2
    Nov 2, 2023 at 11:47
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In finance just in general, you always assume you have 0 on day 1. So if I want to replicate a long fwd equity:

I am hypothetically saving me borrowing $x and paying an interest rate (where I collateralise my borrow with the equity). At the same time I am giving up the div on the eq:

Forward price = spot price + interest - dividend

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  • $\begingroup$ but the question is about cost of borrow $\endgroup$
    – Peaceful
    Nov 4, 2023 at 18:43
  • $\begingroup$ So you can look at it either as the opportunity cost of the cash you have spent to buy this equity or the cost of repo or some other way to fund the purchase. $\endgroup$
    – user68819
    Nov 5, 2023 at 12:15

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