Forward yield: Difference between revisions
From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson (Link with Par yield page.) |
imported>Doug Williamson (Add note about converting to other yield curves.) |
||
| Line 22: | Line 22: | ||
(The [[Forward forward rate]] is technically slightly different.) | (The [[Forward forward rate]] is technically slightly different.) | ||
'''Conversion''' | |||
If we know the forward yield, we can calculate both the [[zero coupon yield]] and the [[par yield]] for the same maturities and risk class. | |||
Revision as of 22:30, 11 November 2015
The rate of return in the market today for a notional or actual deposit or borrowing:
- Starting at a fixed future date; and
- Ending on a later fixed future date.
Example
The forward yield for the maturity 2-3 periods is 3% per period.
This means that a deposit of £1,000,000 at Time 2 periods would return:
£1,000,000 x 1.03
= £1,030,000 at Time 3 periods.
A common application of forward yields is the pricing of forward rate agreements.
The forward yield is also known as the Forward rate or (sometimes) the Forward forward rate.
(The Forward forward rate is technically slightly different.)
Conversion
If we know the forward yield, we can calculate both the zero coupon yield and the par yield for the same maturities and risk class.
