Deriving Forward LIBOR Rates from Spot Rates

Summary

The document asks how to calculate forward LIBOR rates from quoted three-, six-, and twelve-month rates, assuming 30/360 day count and equal quarterly periods. It seeks a learning resource and formulas rather than worked answers. The replies point readers toward an explanation of forward and spot rates with an example, and to a fixed-income textbook chapter on investment science.

The material introduces the distinction between spot rates and forward rates only through the question; it does not provide the derivation, compounding convention, equations, or worked calculations. As a result, it serves mainly as a pointer to further study rather than a self-contained method. Readers would need to consult the suggested references and confirm how the quoted LIBOR rates are compounded and applied to the specified intervals before calculating the requested forward rates.

Key ideas

• The question concerns inferring future-period LIBOR rates from spot rates at several maturities.
• The stated setup assumes 30/360 day count and evenly spaced quarterly periods.
• The replies recommend learning materials on the relationship between forward rates and spot rates.
• The post does not include formulas or calculate any of the requested rates.

Tags

# Need advice on finding forward spot rates


# Need advice on finding forward spot rates












So this is a "work homework" question. As part of my job they are sending us through sort of a training course. I'm looking for advice, or a link to a site that explains how to do this with maybe some formulas or something. I am NOT looking for answers. I want to figure this stuff out myself, I just need a little guidance.

Here is the question:

> Given Information 3-month Libor 1.85% 6-month Libor 1.94625% 12-month Libor 2.06% Find the following: 3-month Libor 3 months forward 6-month Libor 6 months forward 3-month Libor 6 months forward 3-month Libor 9 months forward ASSUMPTION Assume 30/360 day count and even quarterly periods

Thanks guys.

## Answer by Andrey Taptunov (score 4, accepted)

https://quant.stackexchange.com/a/591

If you are looking for good explanation with example than you may want to consider reading Jim Harper aka Bionic Turtle and his article on forward rates and spot rates. You can find excel spreadsheet for given example there as well.

## Answer by nicholasteague (score 2)

https://quant.stackexchange.com/a/597

Another good resource is "Investment Science" by David Luenberger (chapter 4). I'm actually doing "school homework" on the subject right now. I'm guessing you'll find this book good for future assignments as well.

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