Hi!
I'm confused about forward interest rate calculation, Hull (ch 4) uses RF=(R2T2-R1T1)/(T2-T1), Tuckman (ch 2) instead computes from formula (1+r(0,2)/2)^4=(1+r(0,1.5)/2)^3+(1+f(1.5,2.0)/2)^1. I'm sure the answer is just here but I can't see... Is it about compounding? Should I memorize both formulas or can I just be happy with Hull's formula for the exam?
Thank you!
PS David, sorry about personal alert. As I am a Firefox user, I could not post my message into forum. Later I found out that it is more allowed to an IE user So I'll post it for you.
I'm confused about forward interest rate calculation, Hull (ch 4) uses RF=(R2T2-R1T1)/(T2-T1), Tuckman (ch 2) instead computes from formula (1+r(0,2)/2)^4=(1+r(0,1.5)/2)^3+(1+f(1.5,2.0)/2)^1. I'm sure the answer is just here but I can't see... Is it about compounding? Should I memorize both formulas or can I just be happy with Hull's formula for the exam?
Thank you!
PS David, sorry about personal alert. As I am a Firefox user, I could not post my message into forum. Later I found out that it is more allowed to an IE user So I'll post it for you.