Skip to content

CFA Level I · CFA Level I Exam · The Term Structure of Interest Rates: Spot, Par, and Forward Curves

A forward rate in the term structure is most accurately described as:

A forward rate is the interest rate for a loan beginning at a future date, and it is implied by current spot rates through no-arbitrage. It is not a par yield and not a commitment by a government on future issuance.

  1. Athe yield on a bond that is currently trading at par
  2. Bthe interest rate for a loan that starts at a future date, implied by current spot ratesCorrect
  3. Cthe rate at which a government has promised to issue debt in the future

Explanation

A forward rate is the rate on a loan agreed today for a period starting at a future date. It is implied by today's spot rates through no-arbitrage. The par rate describes bonds priced at par, and a forward rate is not an issuance promise.

Did you get it right without looking?

One question tells you little. A timed set on The Term Structure of Interest Rates: Spot, Par, and Forward Curves shows your real accuracy, how long you take and where you lose marks.

Practise The Term Structure of Interest Rates: Spot, Par, and Forward CurvesFree diagnostic mock

More The Term Structure of Interest Rates: Spot, Par, and Forward Curves questions