Answer to Question #127389 in Financial Math for Wachira Ann Wangari

Question

An investment of Ksh 100,000 in an account accumulated to Ksh 250,000 after 4 years.
a)State the accumulation factor A(0,4)
b)Find the simple annual interest rate which would give the accumulation factor in part (a)

Answer 1

(a) . A(t₁,t₂) = T/C

where T = accumulated amount at the end of t₂

C = the amount at the end of t₁

given T = ksh250,000 , C = ksh100,000 and t₁=0 , t₂=4

A(0,4) = 250,000/100,000

A(0,4) = 2.5

(b) . for simple interest

A(t₁,t₂) = 1+ni where n = 4

A(0,4) = 1+ 4i

2.5 = 1+4i

i = (2.5 - 1)/4

i = 1.5 /4

i = 0.375

$\implies$ 37.5%