Forward Rates: Calculations

Forward rates can be calculated using a discount factors, but they can be used in different ways. We outline two methods of discounting, and then give the derivation of a general formula for forward rate calculations. We then demonstrate the use of this formula in an example. We follow this with a look at the formulas for calculating the payoffs for the two sides of a forward rate agreement, and again demonstrate the use of these formulas with an example.