PPT Slide
Forward rates are interest rates for money to be borrowed between two dates in the future but under terms agreed upon today.
Assume that the one-year and two-year spot rates, S1 and S2, are known.
$1 in a 2-year account will grow to $(1 + S2)2 at the end of 2 years.
2. Buy a one-year bond and when it matures in one year from now, buy another one-year bond for another year.