What will be the interest on the amount of Rs.25,000 compounded annually at the rate of 4%, 5% and 6% per annum for the first, second and third year respectively?

Correct option is A

GIVEN:
principal amount 25000
Solution:
how we can calculate the interest for each year:
Year 1:
Principal amount = Rs. 25,000
Interest rate = 4% per annum
Interest for year 1 = Principal amount x Interest rate
= Rs. 25,000 × $$\frac{4} { 100}$$​​
= Rs. 1,000
Year 2:
Principal amount for year 2 = Principal amount for year 1 + Interest for year 1
= Rs. 25,000 + Rs. 1,000
= Rs. 26,000
Interest rate = 5% per annum
Interest for year 2 = Principal amount for year 2 × Interest rate
= Rs. 26,000 × $$\frac{5} { 100}$$​​

= Rs. 1,300
Year 3:
Principal amount for year 3 = Principal amount for year 2 + Interest for year 2
= Rs. 26,000 + Rs. 1,300
= Rs. 27,300
Interest rate = 6% per annum
Interest for year 3 = Principal amount for year 3 x Interest rate
= Rs. 27,300 × $$\frac{6} { 100}$$​​
= Rs. 1,638
Summary:
Interest for year 1: Rs. 1,000
Interest for year 2: Rs. 1,300
Interest for year 3: Rs. 1,638
Total interest earned over 3 years:
= Rs. 1,000 + Rs. 1,300 + Rs. 1,638
= Rs. 3,938