## Deriving the Forward Curve

**Step 9: Deriving forward rates**

In order to derive forward rates from the zero coupon rates for successive interest rate periods, the bootstrapping methodology has been employed. In particular, the following formula has been used:

Where t is the tenor in years, ZC_{t} is the zero coupon rate for a tenor of t years and FC_{t-1,t} is the forward rate for the period (t-1,t).

For example, the forward rate for the interest rate period 3 years to 4 years using zero coupon rates is

The forward rates are as follows is our example:

t | FC_{t-1,t} |

1 | 12.150% |

2 | 12.405% |

3 | 12.643% |

4 | 12.525% |