Forward Rate Calculator

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Annual is the most common convention for bond yield curves. Semi-annual matches US Treasury yields. Continuous compounding is used in derivatives pricing.
The shorter of the two maturities. The forward contract starts at this point in time.
years
The annualised spot (zero-coupon) interest rate for a bond or deposit maturing at t1 years.
%
The longer of the two maturities. The forward contract ends at this point in time. Must be greater than t1.
years
The annualised spot (zero-coupon) interest rate for a bond or deposit maturing at t2 years.
%
Enter a dollar amount to see the projected future values of each strategy alongside the percentage rates. Leave at zero to skip the dollar output.
USD
Implied forward rateNormal curve
0.0805%

Annualised rate for the period from t1 to t2, implied by the spot curve

Forward period3years
Growth factor at t11.0609
Growth factor at t21.338226
Forward growth factor1.261406
Future value (long strategy)13,382.26USD
Future value (rolled strategy)13,382.26USD
Yield curve shapeNormal (upward sloping)
Growth factor at t11.0609
Growth factor at t21.338226
Forward growth factor1.261406

Implied forward rate: 8.048% per year from year 2 to year 5

  • The market implies a 8.048% annualised rate for the 3.0-year window from year 2 to year 5.
  • The forward rate (8.048%) exceeds the long spot rate (6%), which is consistent with a normal, upward-sloping yield curve where investors expect rates to rise or demand a term premium for lending longer.
  • By no-arbitrage, investing at r2 = 6% for 5 years must equal investing at r1 = 3% for 2 years and then rolling into a forward agreement at 8.048% for the remaining 3.0 years.

Next stepUse this rate to price a Forward Rate Agreement (FRA) or to stress-test whether your bond portfolio is compensated for the reinvestment risk implied by the current yield curve.

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