You borrow one million eurostwo years later for a loan period of three years. Since you don't want to bear any interest rate risks, you decide to lock in the interest rates for that future borrowing under current market interest rates.Suppose that the spot market interest rates in annually compounding form are as below:

Lending rateBorrowing rate

1-year3% per annum8% per annum

2-year4% per annum9% per annum

3-year5% per annum10% per annum

4-year6% per annum12% per annum

5-year7% per annum14% per annum

Calculate theeffective interest rate per annum that you can lock in for your 3-year loan based on the above information.