To calculate the compound interest on an amount, we use the formula:
Compound Interest Formula
\[ A = P \left(1 + \frac{r}{100}\right)^n \]
Where:
- A = Total amount after interest
- P = Principal amount (initial investment)
- r = Rate of interest per annum
- n = Number of years
Let's break down the calculation step by step.
Step 1: Identify the Values
- Principal (P): ₹25,000
- Rate of Interest (r): 12%
- Time (n): 3 years
Step 2: Calculate the Total Amount (A)
Using the formula:
\[ A = 25000 \left(1 + \frac{12}{100}\right)^3 \]
\[ A = 25000 \left(1 + 0.12\right)^3 \]
\[ A = 25000 \left(1.12\right)^3 \]
\[ A = 25000 \times 1.404928 \]
\[ A ≈ ₹35,122.20 \]
Step 3: Calculate the Compound Interest (CI)
Now, we find the compound interest by subtracting the principal from the total amount:
\[ CI = A - P \]
\[ CI = 35122.20 - 25000 \]
\[ CI ≈ ₹10,122.20 \]
Conclusion
The compound interest on ₹25,000 at a rate of 12% per annum for three years is approximately ₹10,122.20. This method of calculating interest shows how the amount grows over time, highlighting the benefits of compound interest.