The Forward Interest Rate
Schill, Michael J.
The Forward Interest Rate
F-2126 | Published October 15, 2025 | 12 Pages Technical Note
Collection: Darden School of Business
Product Details
Some interest rates begin immediately; these are referred to as spot rates. Rates agreed upon today but starting at some future date are known as forward rates. The forward rate recognizes that while the spot interest rate in the future is uncertain, there is a certain forward rate that different parties can agree upon to contract for an interest rate in the future. This note motivates forward interest rates, reviews how forward interest rates are calculated, and explores their relation to spot rates. At the University of Virginia Darden School of Business, it is taught in the elective "Valuation in Financial Markets" as an introduction to derivative securities.
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