 # Forward rate calculation exercise from spots, let me know what you get

spot 1= 1.50%
spot 2= 1.91%
spot 3= 2.24%
spot 4= 2.52%
spot 5= 2.77%
spot 6= 3.00%

Hello, given the above spot rates, I get:

F(1,1)= 2.32%
F(1,2)= 2.65%
F(1,3)= 2.94%
F(1,4)= 3.23%
F(1,5)= 3.53%

I use the formula:

F(x,y)= [[((1+spot y)^(x+y))/((1 + spot x)^x)]-1]/y

1 plus the longer spot to the power of the longer time, divided by 1 + shorter spot to the power of the shorter time, minus 1, and then divided by the difference between times.

Is this correct?

What do others get for the above rates?

And has anyone ever used this formula? I know I used to use this for FRM. Is it different? Or it it just an approximation?

F(t, T)= [(R2)(T)-(R1)(T)]/(T-t)

Thank you

The formula should be:

F\left(x,y\right) = \left[\frac{\left(1 + s_{x + y}\right)^{x + y}}{\left(1 + s_x\right)^x}\right]^{\frac1y} - 1

Thank you so much Mr. Campbell. That y-root is the ticket!

Will probably be sending you an L3 mock for grading in a few months.

Cool!