0:00
Hi to everyone.
00:01
So the formula for forward rate is f equals to 1 plus r n to the power n by 1 plus r m to the power m 1 by n minus m minus 1.
00:16
Ok.
00:17
So for first forward rate for second year that is f 2 1.
00:26
So f 2 1 equals 1 plus 0 .03 whole square by 1 plus 0 .02 power 1 minus 1 sorry power 1 by 2 minus 1 minus 1.
00:42
On solving we get 5 .88 percent or 0 .0588.
00:49
Now for third year that is f 3 2.
00:56
So f 3 2 equals 1 plus 0 .037 by 1 plus 0 .03 whole square.
01:10
This is cube power 1 by 3 minus 2 minus 1.
01:17
So on solving we get 0 .052 or 52 percent.
01:23
Now for fourth year for fourth year f 4 3 using the same formula we get f 4 3 equals 0 .067 or 67 percent.
01:45
For fifth year f 5 4 equals 0 .036 or 3 .6 percent.
01:59
Ok.
02:00
Now second one is continuous compounding.
02:10
So the formula is f equals e r n minus r m n minus m minus 1.
02:19
So putting the value forward rate forward rate for second year f 2 1...