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a) Although a 2-year project had returned 30% in its first year, overall it lost half of its value. What was the project's rate of

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a) Although a 2-year project had returned 30% in its first year, overall it lost half of its value. What was the project's rate of return after the first year? [2 points]

b) If you earn a rate of return of 4% over 3 months, what is the annualized rate of return? [1 point]

c) Using the data given in the figure below, calculate the 5-year holding rate of return [2 points]; compute the forward interest rate for a 2-year investment beginning on December 31, 2007 and ending on December 31, 2009

6 Annualized rate, r(in %) 0 50 200 100 150 Maturity (in months) Years - 1 2 3 Months 3 6 1 5 7 10 20 Dec 31, 2004 1.63% 1.79% 2.05% 2.23% 2.58% 2.85% 3.35% 3.75% 4.10% 4.85% The Treasury Yield Curve on December 31, 2004

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