The forward rate is the future yield on a bond. It is calculated using the yield curve. For example, the yield on a threemonth Treasury bill six months from now is a forward rate.^{[1]}
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Calculating the Forward Rate

Spot vs Forward Rates

What is Forward Rate

CFA Level I Yield Measures Spot and Forward Rates Video Lecture by Mr. Arif Irfanullah part 5

Terminzinssätze (forward rates) berechnen
Transcription
Contents
Forward rate calculation
To extract the forward rate, we need the zerocoupon yield curve.
We are trying to find the future interest rate for time period , and expressed in years, given the rate for time period and rate for time period . To do this, we use the property that the proceeds from investing at rate for time period and then reinvesting those proceeds at rate for time period is equal to the proceeds from investing at rate for time period .
depends on the rate calculation mode (simple, yearly compounded or continuously compounded), which yields three different results.
Mathematically it reads as follows:
Simple rate
Solving for yields:
Thus
The discount factor formula for period (0, t) expressed in years, and rate for this period being , the forward rate can be expressed in terms of discount factors:
Yearly compounded rate
Solving for yields :
The discount factor formula for period (0, t) expressed in years, and rate for this period being , the forward rate can be expressed in terms of discount factors:
Continuously compounded rate
Solving for yields :
The discount factor formula for period (0, t) expressed in years, and rate for this period being , the forward rate can be expressed in terms of discount factors:
is the forward rate between time and time ,
is the zerocoupon yield for the time period , (k=1, 2).
Related instruments
See also
References
 ^ Fabozzi, Vamsi.K (2012), The Handbook of Fixed Income Securities (Seventh ed.), New York: kvrv, p. 148, ISBN 0071440992.