The forward rate of interest is the break-even future interest rate that would equate the total return from a rollover strategy to that of a longer-term zero-coupon bond. It is defined by the equation

(1 + yn−1)

n−1

(1 + fn) = (1 + yn)

n where n is a given number of periods from today. This equation can be used to show that yields to maturity and forward rates are related by the equation

(1 + yn )

n

= (1 + r1)(1 + f2)(1 + f3) ⋅ ⋅ ⋅ (1 + fn ) P-639