21 Forward Rates

This video explains the concept of forward rates in finance, building upon the understanding of spot rates. Spot rates are the current interest rates for various investment durations. The video demonstrates how to calculate future interest rates, known as forward rates, by considering alternative investment paths and ensuring they yield the same overall return. This principle is essential for avoiding arbitrage opportunities. We explore how to derive forward rates between different periods using a clear, generalized formula. Understanding this concept allows you to lock in future interest rates today, even though the actual future rates may differ. Visit AxiomTutoring.com for more financial education resources and subscribe to @AxiomTutoringCourses for similar content.