Page 62 - FINAL CFA SLIDES DECEMBER 2018 DAY 14

Session Unit 14:
52. Introduction To Fixed Income Valuation

In other words, investors are willing to accept 4.0% on the 1-year bond today (when they could get

8.0% on the 2-year bond today) only because they can get 12.154% on a 1-year bond one year from
today. This future rate that can be locked in today is a forward rate.

Similarly, we can back other forward rates out of the spot rates. We know that:

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