# Calculating Forward Rates

Hi, Can someone leave me an example of how to calculate the 3M, 6M, 1yr, 5yr, and 10yr forward rate for one of the spot curve points below? Thanks, TERM YIELD 1 Wk 7.6000 1 Mo 7.7300 2 Mo 7.7900 3 Mo 7.8800 4 Mo 7.9500 5 Mo 7.9900 6 Mo 8.0700 9 Mo 8.1800 1 Yr 8.2800 2 Yr 8.2200 3 Yr 8.0800 4 Yr 7.9650 5 Yr 7.8600 7 Yr 7.6750 10Yr 7.4300

nobody can help me out here? Joey?

I could, but this really seems like a question that someone studying should answer as good practice. Do you need the answer quickly?

Joey - yes, I do need the answer quickly. I presumed that you were waiting for someone else to respond with an answer, but I would really appreciate it if you can help me out should you have the time. I would prefer if you can give me the aforementioned forward points for the 1m spot yield. thank you.

If I start with \$1, then after 2 years it’s grown to 1.1712. After 7 years it’s grown to 1.6780. Between years 2 and 7 its cagr is (1.678/1.1712) ^ .2 = 1.0746, so the 5yr forward rate at year 2 is 7.46%. Not sure if for rates < 1 yr whether they’re expressed as discounts instead of annual yields. Other than that the same process above should apply I think. (Caveat: I’m no FI quant, but I stayed at a Holiday Inn last night.)

Ok - thanks Darien - I figured that this was the way to calculate forward rates, but I was questioning myself because the below bloomberg screen forward analysis is driving me crazy. Can someone explain to me how they are arriving at the 3M, 6M, and 1yr forward points? The 1yr forward points from 1yr to 10yr are making sense to me, but the others are not. Thanks. TERM YIELD 5/26/08 8/26/08 2/26/09 1 Wk 7.9350 7.6960 7.3923 7.5882 1 Mo 7.9350 7.6858 7.3722 7.6008 2 Mo 7.9107 7.6721 7.3463 7.6199 3 Mo 7.8900 7.6598 7.321 7.6373 4 Mo 7.8765 7.6237 7.5079 7.6559 5 Mo 7.8626 7.5915 7.6485 7.6744 6 Mo 7.8500 7.5621 7.7627 7.6924 9 Mo 7.7700 7.8297 7.8206 7.7475 1 Yr 7.6800 7.6175 7.6036 7.5342 2 Yr 7.6100 7.5951 7.6132 7.6488 3 Yr 7.6600 7.6724 7.7106 7.7911 4 Yr 7.7600 7.7813 7.8209 7.9016 5 Yr 7.8500 7.8719 7.9088 7.9825 7 Yr 7.9700 7.9943 8.0304 8.1014 10Yr 8.1000 8.1259 8.1604 8.2283 15Yr 8.2300 n/a n/a n/a

Bloomberg help is pretty good – they’ll explain any calculation you ask them to. Might take a couple of hours for them to track it down though.