Enter the spot rate until a further future date and until a closer future date, and the number of years until further date and number of years until a closer future date to determine the forward rate.

## Forward Rate Formula

The following formula is used to calculate a forward rate.

FR = [(1+S1)^n1/(1+S2)^n2]^(1/(n1-n2)) – 1

- Where FR is the forward rate
- S1 is the spot rate until a further future date
- S2 is the spot rate until a closer future date
- N1 is the number of years until the further future date
- N2 is the number of years until the closing date

## Forward Rate Definition

A forward rate is defined as the relationship of the yield curve between two different bonds.

## Forward Rate Example

How to calculate a forward rate?

**First, determine the spot rates at the two different time periods.**For this example, we will say the spot rates are .10 for the shorter time and .15 for the longer time.

**Next, determine the two time periods.**We will say the time periods are 10 and 15 years respectively.

**Finally, calculate the forward rate.**Using the formula we find the forward rate to be .257.

## FAQ

**What is a forward rate?**

A forward rate describes the yield curve of different bonds with different maturity periods. Forward rates are interest rates that are applicable to a transaction that will occur in the future and measure the adjusted cost to carry an investment when compared between two different time periods in the future.