Calculating the Forward Rate from Yield Curves

Consider the following term structure of interest rates for U.S. Treasury securities:

- 1-year rate: 2.0%

- 2-year rate: 2.5%

- 3-year rate: 3.0%

The yield curve shown is upward sloping. Based on this information, calculate the 1-year forward rate one year from now, denoted as f(1,1).

Use the formula for the forward rate:

f(t,T) = [(1 + yT) ^ T / (1 + yt) ^ t] - 1

Where yT is the interest rate for T years, and yt is the interest rate for t years.