11. Excel For Finance Tips - Will interest rates go up or down ?
I had a look at interest rates available on the market, and found the 1y rate to be 1.50% and the 5y was at 3.20%
Taking just these 2 rates, and assuming that there's no arbitrage, I calculated the 4y rate in 1 year's time to be 3.63%.
Note: This is just an approximation based on 2 rates, but the main point is that when short term rates are a lot lower than long term rates, this means that the rates in between are implied to be higher in order for the return to be the same over the whole period.
Here's how it looks in Excel:
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