Implied forward rate

[Number1]

Hello BionicTurtle, I want to calculate the implied 6 month forward rate starting 6 months from now given the 1 year spot and 6 month spot, but am not very clear on how to do this. Is this correct ? [ (1 + 1 year spot) / (1 + 6 month spot)^.5 ] -1 My thinking is if I invest for 1 year upfront at the spot rate, the return should be the same as if I invested for 6 months at the spot rate on T0 and then rolled it over and invested another 6 months at the 6 month forward rate on T0. Thanks.
*I'm assuming annual compounding

 

[David Harper CFA FRM]

Hi Number1, yes, that's the correct approach (i.e., this common approach concedes no advantage to the rollover alternative, and solves for a forward rate that equalizes), see http://forum.bionicturtle.com/threads/shortcut-to-forward-rates-if-you-have-bond-prices.4927/

 

[Number1]

Sweet, thanks.