How to Interpolate Interest Rates

How to Interpolate Interest Rates
Linear interpolation estimates values between data points.

Step 1

Subtract the interest rate of a time period shorter than the time period of the desired interest rate from the interest rate of a time period longer than the time period of the desired interest rate. For example, if you are interpolating a 45-day interest rate, and the 30-day interest rate is 4.2242 percent and the 60-day interest rate is 4.4855 percent, the difference between the two known interest rates is 0.2613 percent.

Step 2

Divide the result from Step 1 by the difference between the lengths of the two time periods. For example, the difference between the 60-day time period and the 30-day time period is 30 days. Divide 0.2613 percent by 30 days and the result is 0.00871 percent.

Step 3

Multiply the result from Step 2 by the difference between the length of time for the desired interest rate and the length of time for the interest rate with shortest length of time. For example, the desired interest rate is 45 days away, and the shortest known interest rate is the 30-day rate. The difference between 45 days and 30 days is 15 days. 15 multiplied by 0.00871 percent equals 0.13065 percent.

Step 4

Add the result from Step 3 to the interest rate for the shortest known time period. For example, the interest rate from the 30-day time period is 4.2242 percent. The sum of 4.2242 percent and 0.13065 percent is 4.35485 percent. This is the interpolation estimate for the 45-day interest rate.