Forward rate

What it means

The interest rate agreed today for borrowing or lending over a future period, implied by today’s spot curve.

The exam angle

Implied forwards are break-even rates, not forecasts. A curve that implies rising rates is telling you what must happen for two strategies to tie, not what the market predicts.

Where it appears in the syllabus

• Fixed IncomeCFA Level I · exam weight 11–14% · Pricing, yield measures, duration, convexity, credit spreads.
• Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
• Fixed IncomeCFA Level II · exam weight 10–15% · Term structure dynamics, arbitrage-free valuation, embedded options, CDS.
• Valuation & Risk ModelsFRM Part I · exam weight 30% · VaR and ES, option valuation, bond risk, stress testing, credit and op risk.

Related terms

• ConvexityThe curvature of the price–yield relationship — how duration itself changes as yields move.
• DurationThe sensitivity of a bond’s price to a change in yield, and equivalently the weighted average time to receiving its…
• Spot rateThe yield on a single cash flow received at one future date, with no intervening coupons.
• Callable bondA bond the issuer may redeem early, usually when rates have fallen.
• Effective durationDuration measured by repricing the bond under small parallel shifts in the benchmark curve, so that changes in cash…
• Modified durationThe approximate percentage change in a bond’s price for a one percentage point change in yield.