The amount on a sum of ₹2,500 at 14% per annum compound interest, compounded…

Concept

Compound interest, compounded annually, means each year’s interest is calculated on the amount standing at the start of that year (principal plus interest already earned), not on the original principal alone. The amount after n years is given by the identity A = P × (1 + r/100)n, where P is the principal, r is the annual rate percent, and n is the number of years.

Application

1. Identify the given values: principal P = ₹2,500, rate r = 14% per annum, time n = 2 years, compounded annually.

2. Compute the one-year growth factor: 1 + 14/100 = 1.14.

3. Raise the growth factor to the power of the number of years: 1.142 = 1.14 × 1.14 = 1.2996.

4. Multiply by the principal: A = 2,500 × 1.2996 = ₹3,249.

Cross-check

1. Year 1 amount: 2,500 + (14% of 2,500) = 2,500 + 350 = ₹2,850.

2. Year 2 amount: 2,850 + (14% of 2,850) = 2,850 + 399 = ₹3,249.

Both the direct formula and the year-by-year build-up give the same figure, confirming the result.

The amount on ₹2,500 at 14% per annum compound interest, compounded annually, for 2 years is ₹3,249.