Forward rates, Financial Management

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Now that we have seen how default-free theoretical rate can be extrapolated from the treasury yield curve, let us see how some other additional information, like forward rates, can be extrapolated from the default-free theoretical spot rate.

Examples of forward rates that can be calculated from the default-free theoretical spot rate curve are as follows:

  • 3-month forward rate three months from now.

  • 6-month forward rate six months from now.

  • 1-year forward rate one year from now.

  • 5-year forward rate three years form now.

Forward rates are also known as implicit forward rates because they are implicitly extrapolated from the default-free theoretical spot rate curve.


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