Does anyone know where these values are derived: 1.070024, which was used to raise the overpayment of .952 in year 2 1.08007, which was used to raise the overpayment in year 3
nevermind, found the answer
1.070024 = (1.065^2)/1.06 represents a 1 year interest rate on borrowings starting in 1 year. 1.08007 =( 1.07^3 )/(1.065^2) represents a 1 year interest rate on borrowings starting in 2 years. i.e. they are 1f1 and 2f1 forward rates, derived from spot rates ( lvl I stuff)
janakisri Wrote: ------------------------------------------------------- > 1.070024 = (1.065^2)/1.06 represents a 1 year > interest rate on borrowings starting in 1 year. > > 1.08007 =( 1.07^3 )/(1.065^2) represents a 1 year > interest rate on borrowings starting in 2 years. > > i.e. they are 1f1 and 2f1 forward rates, derived > from spot rates ( lvl I stuff) Thanks for this. I think this is starting to come back to me, bootstrapping was the term I believe.