Compound Interest Calculation

To calculate the compound interest on a principal amount, we need to use the formula:

A = P(1 + r/n)^(nt)

Where:
A = the final amount after interest
P = the principal amount (initial investment)
r = the annual interest rate (in decimal form)
n = the number of times interest is compounded per year
t = the number of years

In this case, we have:
P = 25000 rupees
r = 12% per annum = 0.12 (in decimal form)
n = 1 (compounded annually)
t = 3 years

Calculating Compound Interest

Substituting the given values into the formula, we have:

A = 25000(1 + 0.12/1)^(1*3)
A = 25000(1 + 0.12)^3
A = 25000(1.12)^3
A = 25000 * 1.404928
A = 35123.2 rupees

Compound Interest Calculation Explained

- The principal amount is 25000 rupees.
- The annual interest rate is 12%, which is converted to a decimal form as 0.12.
- The interest is compounded annually, so n = 1.
- The investment is held for a period of 3 years, so t = 3.

Using the Compound Interest Formula

Now, let's calculate the compound interest step by step using the formula:

1. Calculate the amount after 1 year:
A1 = 25000(1 + 0.12/1)^1
A1 = 25000(1 + 0.12)
A1 = 25000 * 1.12
A1 = 28000 rupees

2. Calculate the amount after 2 years:
A2 = 28000(1 + 0.12/1)^1
A2 = 28000(1 + 0.12)
A2 = 28000 * 1.12
A2 = 31360 rupees

3. Calculate the amount after 3 years:
A3 = 31360(1 + 0.12/1)^1
A3 = 31360(1 + 0.12)
A3 = 31360 * 1.12
A3 = 35123.2 rupees

Compound Interest Calculation Result

After 3 years, the final amount, including the compound interest, is 35123.2 rupees. Therefore, the compound interest earned on 25000 rupees at a rate of 12% per annum for 3 years is 35123.2 - 25000 = 10123.2 rupees.