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Forward Rate

The implied future interest rate derived from today's zero curve — what the market 'expects' rates to be.

Forward rates are implied by the relationship between zero rates at different maturities. The 1Y rate, 2 years from now (the '2y1y forward') is derived from today's 2Y and 3Y zero rates. Formula (continuous): f(t1,t2) = (z₂×t₂ − z₁×t₁) / (t₂ − t₁). Interpretation: If you can lock in 4% for 2 years or 4.5% for 3 years, the implied 1-year rate starting in year 2 must be 5.5% (to make both strategies equivalent). Forward rates aren't forecasts — they're arbitrage-implied rates. But they're critical for: pricing FRAs and swaps, building term structure models, and the CFA L2 'three curves' framework (zero, forward, par).

Formula
f(t1,t2)=z2⋅t2−z1⋅t1t2−t1f(t_1, t_2) = \frac{z_2 \cdot t_2 - z_1 \cdot t_1}{t_2 - t_1}