Calculate ForwardCalculate SpotFNCE 3020 Example CalculationsSpots to Forwards and Forwards to SpotsCalculate Forward Rates From Spot RatesYear 1 Year 2 Year 31 year spot 6%1 year forward, starting one year from today 8%1 year forward, starting two years from today? 1. If the three year spot rate is 9%, what is the one year forward rate startingtwo years from today?(1+ .09)^3 = $1.29503 = FV of $1 in three years(1+.06)x(1+.08) = $1.14480 = FV of $1 in two years1.29503/1.14480 = 1.13123 = 1 + period 3 return1.13123-1= 13.12% = AnswerYear 1 Year 2 Year 31 year spot 6.5%1 year forward, starting one year from today ?1 year forward, starting two years from today? 2. If the three year spot rate is 10% and the two year spot rate is 7.5%, what is the one year rate starting two years from today?(1.10)^3 = 1.33100 = FV of $1 in three years(1+.075)^2 = 1.15563 = FV of $1 in two years1.33100/1.15563 = 1.15176 = 1 + period 3 return1.15176-1 = 15.18% = Answer3. For the same example, what is the one year forward rate starting one year from today?(1+.075)^2 = 1.15563 = FV of $1 in two years(1+.065)^1 = 1.06500 = FV of $1 in one year1.15563/1.06500 = 1.08509 = 1 + period 2 return1.08509-1 = 8.51% = AnswerCalculate Spot Rates From Forward RatesYear 1 Year 2 Year 31 year spot 5%1 year forward, starting one year from today 6.5%1 year forward, starting two years from today 8%1. Calculate the two year spot rate(1+.05)x(1+.065) = $1.11825 = FV of $1 in two years(1.11825)^.5 = 1.05747 = 2 year spot + 11.05747 - 1 = 5.75% = Answer2. Calculate the three year spot rate(1+.05)x(1+.065)x((1+.08) = $1.20771 = FV of $1 in three years(1.20771)^.3333333 = 1.06493 = 3 year spot + 11.06493 - 1 = 6.49% =