A forward rate is the interest rate of an investment that will be initiated in the future. It is an estimation assuming that the market is perfectly efficient and no arbitrage opportunities exist. Forward rates can be determined using spot rates and the respective term structures. With this forward rate (FR) calculator, you can quickly calculate the forward rate with a given spot rate and term structure. This calculator calculates the interest rate of an investment from the end of time period 2 to the end of time period 1.
The forward rate formula helps in deciphering the yield curve which is a graphical representation of yields on different bonds having different maturity periods. It can be calculated based on spot rate on the further future date and a closer future date and the number of years until the further future date and closer future date. Formula: Forward Rate f(t-1, 1) = [(1 + s(t))t / (1 + s(t-1))t-1 ] – 1
st:t- period Spot Rate
st-1:t-1-period Spot Rate
ft-1, 1: forward Rate applicable for the period (t-1,1)