Question 1103908: Question 1 (1 point)
A bank offers a four-year "Escalating Rate GIC" on which the interest rate for year one is 3% compounded annually, 4% compounded annually for year two, 5% compounded annually for the third year and 6% compounded annually for the fourth year. Determine the maturity value of a $100,000 four-year "Escalating Rate GIC
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! you borrow 100,000.
at the end of the first year, the value of the loan is 100,000 * 1.03 = 103,000.
at the end of the second year, the value of the loan is 103,000 * 1.04 = 107,120.
at the end of the third year, the value of the loan is 107,120 * 1.05 = 112,476.
at the end of the fourth year, the value of the loan is 112,476 * 1.06 = 119,224.56.
the average yearly interest rate would be the fourth root of 119,224.56 / 100,000 = 1.044940187 - 1 = .044940187 * 100 and rounded to 2 decimal places = 4.49%.
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