Let in 01 n for n 1234 be the effective rate of interest ea

Let in = 0.1 n for n= 1,2,3,4 be the effective rate of interest earned in year n. Find a(4) and the effective annual rate of interest earned during the first 4 years.

Solution

Here,

(1+a(4))^4 = (1+0.01)*(1+0.02)*(1+0.03)*(1+0.04)

(1+a(4))^4 = 1.10355024

1+a(4) = 1.02493902

a(4) = 0.02493902 or 2.493902% [ANSWER]