Discount factors are P(1) = 0.9615, P(2) = 0.9246, P(3) = 0.8890, interest rate = 4%.

Suppose the future discount function at Year 1 is the same as the forward discount function implyed by the Year 0 spot curve. The lapse of time is t = 1. The discount factors for the one-year and two-year terms on year from today are:

P*(1) = 0.9246 / 0.9615 = 0.9616

P*(2) = 0.8890 / 0.9615 = 0.9246

The price of the forward contract one year from today is F*(1,2,1) = 0.9246 / 0.9616 = 0.9615

What are they trying to explain here? What I’m getting is that the price of the forward contracts at t = 1 is the same as the price at t = 0. So it is as if I’m shifting the timeline one year over and the numbers are shifting as well?