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Forward rate

Definition:

A projection of future interest rates calculated from either spot rates or the yield curve. For example, suppose the one-year government bond was yielding 2% and the two-year bond was yielding 4%. The one year forward rate represents the one-year interest rate one year from now. You would solve the formula (1.04)^2=(1.02)(1+F). F is 6.03%.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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