In: Finance
If the 6 month spot rate is 0.523% and the 12 month spot rate is 0.762%, what is the 6 month forward rate, beginning in 6 months, expressed as an annual rate with semi-annual compounding?
(1+Annual spot rate) = (1+ semiannual spot rate) (1+ semiannual forward rate)
(1+ 0.762 %) = (1+0.523%/2) (1+ semiannual forward rate)
(1+ 0.00762) = (1+0.00523/2) (1+ semiannual forward rate)
(1.00762) = (1 + 0.002615) (1+ semiannual forward rate)
(1.00762) = (1.002615) (1+ semiannual forward rate)
(1+ semiannual forward rate) = 1.00762/1.002615
(1+ semiannual forward rate) = 1.004991946061
Semiannual forward rate = 1.004991946061 – 1 = 0.004991946061
Annual forward rate beginning in six months = 0.004991946061 x 2 x 100
= 0.99838921221% or 0.998389 %