Forward interest rate formula

Tag: time value of money

Description of the Forward interest rate formula

Formula for the calculation of a forward interest rate between dates $t_{1}$ and $t_{2}$ .

r_{t_{1, 2}} = [\frac{(1 + (r_{t_{0, 2}} \times \frac{n_{t_{0, 2}}}{d_{b a s e}}))}{(1 + (r_{t_{0, 1}} \times \frac{n_{t_{0, 1}}}{d_{b a s e}}))} - 1] \times (\frac{d_{b a s e}}{n_{t_{1, 2}}})

d_{b a s e}

Number of days per year (360, 365 or 366 depending on )

n_{t_{0, 1}}

Number of days between the calculation date $t_{0}$ and date $t_{1}$

n_{t_{0, 2}}

Number of days between the calculation date $t_{0}$ and date $t_{2}$

n_{t_{1, 2}}

Number of days between date $t_{1}$ and date $t_{2}$

r_{t_{0, 1}}

Interest rate for the period between the calculation date $t_{0}$ and date $t_{1}$

r_{t_{0, 2}}

Interest rate for the period between the calculation date $t_{0}$ and date $t_{2}$