Question

Work out the balance for £4500 invested for 2 years at 4% per annum

Answer 1

This situation can be represented by a geometric sequence, where each term is the balance each successive year:

$U_{n} = a * r^{n}$

Un = the balance on the nth year

a = intial balance

r = multiplier

n = number of years

From the information:

a = 4500

r = 1.04

(4% increase per annum is the equivalent of multiplying by 1.04 so the multiplier is 1.04)

n = 2

So:

$U_{2} = 4500 * (1.04)^{2} \\= 4867.2$

The balanc after two years is: £4867.20