Hello David,
for the formula on page 46 of your screencast: Ri+1 = (Fi(Ti+1 - Ti) + RiTi)/Ti+1
Is there a more intuitive way to better understand this formula or is memorization the more preferable way?
I was trying to see if there's a relationship between this formula (where we extract zero rates from forward rates) and the formula that we used in chapter 4: (R2T2 - R1T1) / T2-T1 , where we were trying to extract forward rates from spot rates, I was trying to see if I can get one formula from the other, but wasn't really able to do so.
- another question is that when I use the (R2T2 - R1T1) / T2-T1 formula to try to figure out the forward rate by the spot rates provided on page 46 (just for testing), I got a forward rate of 5.3%: Rf= 4.893%+(4.893%-4.8%)*(400/91), but the table shows that the forward rate is instead 5.5%. Can you please tell me what I'm doing wrong here? Thanks!
for the formula on page 46 of your screencast: Ri+1 = (Fi(Ti+1 - Ti) + RiTi)/Ti+1
Is there a more intuitive way to better understand this formula or is memorization the more preferable way?
I was trying to see if there's a relationship between this formula (where we extract zero rates from forward rates) and the formula that we used in chapter 4: (R2T2 - R1T1) / T2-T1 , where we were trying to extract forward rates from spot rates, I was trying to see if I can get one formula from the other, but wasn't really able to do so.
- another question is that when I use the (R2T2 - R1T1) / T2-T1 formula to try to figure out the forward rate by the spot rates provided on page 46 (just for testing), I got a forward rate of 5.3%: Rf= 4.893%+(4.893%-4.8%)*(400/91), but the table shows that the forward rate is instead 5.5%. Can you please tell me what I'm doing wrong here? Thanks!