## 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% |

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