This situation can be represented by a geometric sequence, where each term is the balance each successive year:
[tex]U_{n} = a * r^{n}[/tex]
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:
[tex]U_{2} = 4500 * (1.04)^{2} \\
= 4867.2[/tex]
The balanc after two years is: £4867.20
