A sum of ₹8,000 is invested at a compound interest rate of 12.5% per annum for 2 years, compounded annually. What is the compound interest earned?
₹2,125
The amount under compound interest is given by \(A = P\left(1+\frac{R}{100}\right)^n\).
Here \(P = 8000\), \(R = 12.5\%\) and \(n = 2\) years.
Since \(12.5\% = \frac{1}{8}\), the yearly growth factor is \(1+\frac{1}{8}=\frac{9}{8}\).
So \(A = 8000 \times \frac{9}{8} \times \frac{9}{8} = 8000 \times \frac{81}{64} = 10125\).
Compound interest \(= A - P = 10125 - 8000 = 2125\).
Hence, the compound interest earned is ₹2,125.
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