Forward rate calculation

[ps_ricky_son]

Hi, I have a question regarding the difference between the 2 calculations of forward rate

1. FWD rate = (R2 T2 - R1 T 1 ) / (T2 - T1)

2. FWD rate = R2 + [(R2 - R1 ) * (T1) / (T2 - T1) ]

kindly help and when should we should them respectively. Thanks~

 

[ShaktiRathore]

Hi the above two are one and the same representation of the formula FWD rate = (R2 T2 - R1 T 1 ) / (T2 - T1) can be rewriten as FWD rate = (R2 T2 - R1 T 1 +R2T1-R2T1) / (T2 - T1) =(R2(T2-T1)+R2T1-R1T1)/T2-T1=R2+((R2-R1)*T1/T2-T1)
This is used to calculate forward rate in continous compounding set of rates.
If f is forward rate and spot rates for t=T1 is R1 and R2 for time period t= T2 where R1 and R2 are continously compounded rates. Then forward rate f(T1,T2) is such that e^R2*T2=(e^R1*T1)*e^f*(T2-T1)=>f=(R2T2-R1T1)/T2-T1
Thanks

 

[ps_ricky_son]

thx a lot~~