Enter the Spot Rate and the Risk-Free Rate into the calculator to determine the Libor Rate. This calculator can also evaluate any of the variables given the others are known.

## Libor Rate Formula

The following formula is used to calculate the Libor Rate.

LR = (1 + S) / (1 + R) - 1

Variables:

• LR is the Libor Rate (decimal) S is the Spot Rate (decimal) R is the Risk-Free Rate (decimal)

To calculate the Libor Rate, add 1 to the Spot Rate and divide it by the sum of 1 and the Risk-Free Rate. Subtract 1 from the result to get the Libor Rate.

## What is a Libor Rate?

The Libor Rate, or London Interbank Offered Rate, is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. It serves as a reference point for a wide range of financial products worldwide, including mortgages, student loans, and credit cards. The rate is calculated and published each business day by the Intercontinental Exchange (ICE).

## How to Calculate Libor Rate?

The following steps outline how to calculate the Libor Rate using the given formula:

1. First, determine the Spot Rate (S) and the Risk-Free Rate (R) values.
2. Next, insert the values of S and R into the formula: LR = (1 + S) / (1 + R) – 1.
3. Finally, calculate the Libor Rate (LR) using the formula.
4. After inserting the values and calculating the result, check your answer with the calculator above.

Example Problem:

Use the following variables as an example problem to test your knowledge:

Spot Rate (S) = 0.05

Risk-Free Rate (R) = 0.02