Hi folks,

I need some help understanding the economics of this equation

This timeline should help in interpreting the notation:

In the equation above:

- S(j+k) = spot rate at Year j+k
- Sj = spot rate at Year j
- f(j,k) = annualized interest rate for a k-year loan starting in Year j

I need help understanding the economics of the equation. For example, on the left hand side of the equation, why do we use the spot rate at Year j+k for compounding into the future? Isn’t this rate used for discounting?

Thanks in advance, folks.