Implied Six Month Rate Calculator

Formula

The formula to calculate the Implied Six Month Rate (r_6m) is:

\[ r_{6m} = \left( \frac{1 + r_{1y}}{1 + r_{6m}} \right)^2 - 1 \]

Where:

Implied Six Month Rate (r_6m): A forward-looking interest rate derived from current interest rates for different maturities, representing the expected rate for a six-month period starting at a future date.
Significance: Helps investors understand market expectations for future interest rates and compare investment opportunities.

Let's say the annual rate for 1 year (r_1y) is 0.05 (5%) and the annual rate for 6 months (r_6m) is 0.02 (2%). Using the formula:

\[ r_{6m} = \left( \frac{1 + 0.05}{1 + 0.02} \right)^2 - 1 \approx 0.0598 \]

So, the Implied Six Month Rate (r_6m) is approximately 0.0598 (5.98%).