Question

An investment of Ksh1,000,000 in an account accumulated to Ksh 2,500,000 after 5 years.

(i) State the accumulation factor A(0,5) . (2 marks)

(ii) (a) Find the simple annual interest rate which would give the accumulation

factor in part (i). (3 marks)

(b) Find the annual compound interest rate which would give the

accumulation factor in part (i). (3 marks)

Answer 1

(i)$Factor A=\frac{2500000}{1000000}=2.5$

(ii)

a)$2 500 000=1 000 000(1+5x)$

1500 000=5 000 000x

x=0.3

or 30%

b)$2 500 000=1 000 000(1+x)^5$

$2.5=(1+x)^5$

x=1.0845