Calculating the Forward Rate

This video shows how to calculate the Forward Rate using yields from zero-coupon bonds. A comprehensive example is provided along with a formula to show how the Forward Rate is computed based on zero-coupon yields.
Edspira is your source for business and financial education. To view the entire video library for free, visit www.Edspira.com
To like us on Facebook, visit / edspira
Edspira is the creation of Michael McLaughlin, who went from teenage homelessness to a PhD. The goal of Michael's life is to increase access to education so all people can achieve their dreams. To learn more about Michael's story, visit www.MichaelMcLaughlin.com
To follow Michael on Facebook, visit
/ prof.michael.mclaughlin
To follow Michael on Twitter, visit
/ prof_mclaughlin-
Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world.
-
SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS:
• A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING
• A 44-PAGE GUIDE TO U.S. TAXATION
• A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS
• MANY MORE FREE PDF GUIDES AND SPREADSHEETS
* eepurl.com/dIaa5z
-
SUPPORT EDSPIRA ON PATREON
* / prof_mclaughlin
-
GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT
* edspira.thinkific.com
-
LISTEN TO THE SCHEME PODCAST
* Apple Podcasts: podcasts.apple.com/us/podcast...
* Spotify: open.spotify.com/show/4WaNTqV...
* Website: www.edspira.com/podcast-2/
-
GET TAX TIPS ON TIKTOK
* / prof_mclaughlin
-
ACCESS INDEX OF VIDEOS
* www.edspira.com/index
-
CONNECT WITH EDSPIRA
* Facebook: / edspira
* Instagram: / edspiradotcom
* LinkedIn: / edspira
-
CONNECT WITH MICHAEL
* Twitter: / prof_mclaughlin
* LinkedIn: / prof-michael-mclaughlin
-
ABOUT EDSPIRA AND ITS CREATOR
* www.edspira.com/about/
* michaelmclaughlin.com

[@andylu2213]

I hope you are a blessed man wherever you are, thank you so much!!!!!!!!!

[@osmanguney7324]

thx, you explain it so much better and easier than the idiots of my university. Subbed.

[@Nimmersatt24]

@Peng Fu I'll read this comment section at least twice a year, now

[@gallantintrepid]

Thank you so much for helping me out. I was reviewing this content for my final test and this video saved my life!

[@aultmanfilms4590]

This video popped up on my feed 3 years after graduating college and gave me the warmest feeling of never having to worry about this stuff again😂

[@ycressycres7012]

Finally , a teacher that explains the theory concepts and step by step instructions. I wish I had a teacher like you in my capital markets course! oh wait I do, thank you.

[@bobrobert8684]

You have made the calculation of forward rates very simple. Excellent presentation.

[@bodyevolution8516]

You're an excellent teacher. Thank you!

[@claytonburns5670]

Good lord, you didn't even use WORDS and you did a much better job than my textbook, thank you!!!

[@claytonburns5670]

I had the video on silence on accident... and I still understood what was going on by just following your circles LOL

[@bhagatsingh5019]

Thank you for your all beautifully explained videos.

[@JayDoRaD0]

Great Video! We had such confusing notations in our course material. Your video cut the BS and got right to the core! Thanks!

[@Edspira]

Awesome. Thanks for watching!

[@mikehall2855]

you're videos are so helpful! thankyou!

[@josuesalazar5756]

Thanks for the explanation, you really explain all in detail

[@justinmorris6783]

Thanks! Very clear video... Helps with my Interest Rate Swap work.

[@Tom_XR6]

Very helpful thank you! This is a very concise way of explaining it!

[@Edspira]

I'm glad you liked the video. Thanks for the comment!

[@nageshsoora]

Such a beautiful explanation, tq sir ... Love from india ❤️

[@brentlong8403]

80,000th sub, Just clicked and jumped. Congrats

[@lidiafule538]

Thank you for the great explanation! It was amazing good clarification for my beginner studies of MsC in Finance!

[@Edspira]

Great. Thanks for watching!

[@chesscheck7245]

As a master student in finance this is way better than my book(my book is totally useless)

[@IDENTIDADVISUAL2012]

Many thanks bro! Finaly I could understand this kind of rate.

[@belforduo6702]

Great explanation! You should make more videos.

[@usmanashraf9079]

love this channel

[@Panavista01]

Professor, Could you share the concept of calculating the "forward 6-quarter rate." Thank you!!!

[@pmurph1981]

Excellent explanation!

[@behemothinferno]

If we're using months instead of years, would n then be (number of months/12)?

[@harmankardon478]

such a great channel

[@speedy_o0538]

Thanks, my uni can't explain this easily for some reason. Subbed.

[@colemattingly6033]

what do you do for multiple years like implied 5 year forwar rate in five years?

[@simakhant8463]

Can you explain the sum regarding forward contract cancellation & extension

[@charlesjunior8181]

That is a great video! Could you please also teach us how to calculate from Par to Zero coupon rate?

[@pj3474]

Thanks man! You saved the day! 🤗🙂

[@JonLuskin]

Thank for putting this up. This is fantastic.

[@Edspira]

No problem Jon!

[@hgtrad7655]

Very well explained, thank you for your time!!

[@Edspira]

Glad you enjoyed it!

[@lily8261]

Thank you this was really helpful!

[@NguyenTonyWelly]

Nice video, thanks for that, which software or app did you use to make the video?

[@manasimanjrekar9881]

Is this the same as calculating annuity?

[@FelipeR78]

How often is interest on a forward rate swap paid?

[@z7349287]

Very nice. Thank you!

[@xiweizhang3977]

thank you, very clear

[@blankerhans9659]

But didnt zero bond mean that you only get the interest in the last year? In this equation we say that we get 4,25% in year 1 and year 2 or not?

[@chrisbrainezenwantakiri6591]

you guys are trying but this formula will be used when (1+PD)/(1+pf) then all raised to power n

[@jasonw9251]

Thanks for the video!

[@Edspira]

You bet!

[@SandwichQuotes]

Very helpful, thank you!

[@Edspira]

Sure thing!

[@argenturatbek787]

Thank you, sir

[@saitomsai4150]

Thank You !

[@tarunnegi7642]

Very clear!!!

[@myname7529]

thank you!

[@DarklordMan]

Thank you very much !!!

[@jonathanoliver9643]

so where in real life can you find yields for zero coupon bonds? what is an example of a zero coupon bond?

[@thisisnotnw]

THANK YOU

[@AaronB99999]

From a practical perspective, how do you get the zero-coupon rates that are the inputs? I know you can get the one-year Treasury spot since it has no coupons, but the 2-year and longer Treasuries all have coupons.

[@Loun96]

those are special instruments where "real" bonds are bought by banks which then "transform" them into new instruments which dont have coupon payments (e.g. they sell the coupons separeate from the actual bond, thereby creating a new security -> zero coupon bond)

[@user-rt9xd1xe6c]

Thank you for sharing,but when you calculate f2 f3 f5 seems like a little mistake to put 1.035 equal to 0.035???

[@Edspira]

In the equation, you take (1+ YTM). Thus, if the YTM = 0.035, then you would use 1.035 in the formula. Excellent point, I probably should have made this clearer.

[@jennawang1637]

Really helpful!! Thx!

[@Edspira]

+Jenna Wang Sure thing! Take care :)

[@velinrai7064]

Awesome.

[@tiang1627]

helpful!!

[@moea1545]

thank you you are the best!

[@Edspira]

Thanks!

[@Screlon]

Amazing.

[@Edspira]

Thanks!

[@trevormcgee5320]

Why couldn’t my textbook say it that well! Thank you!

[@Edspira]

No problem!

[@danbrown1821]

Why are you squaring 1.0425? isnt that the rate over the 2 years, meaning you dont have to square it. And even when you calc this out.. you get 5% so when you add 3.5 + 0.5 =4. Which does not equal the 4.25%. Shouldnt 3.5 + f2 = 4.25?

[@danbrown1821]

He also said in the video, it was off slightly due to rounding, but not sure if .25% is considered off slightly. This is 25 basis points!

[@benjaminboahandoh1721]

Screen not visible enough . Too dark.

[@hallmorrison]

Make one with hedging

[@Loun96]

[@arsevela33]

Why the he’ll can’t the graduate professor explain it this way! The book sucks and the videos lectures are worse.