The question asks us to find the compound interest when:

• Principal ($P$) = ₹25,000
• Rate of Interest ($R$) = 2.5% per annum
• Time ($T$) = 2 years
• Compounding is annual.

The formula for compound interest is:

$A = P \times \left(1 + \frac{R}{100}\right)^T$

Where:

• $A$ is the total amount after $T$ years,
• $P$ is the principal,
• $R$ is the annual interest rate,
• $T$ is the time in years.

Step 1: Calculate the total amount ($A$):

$A = 25,000 \times \left(1 + \frac{2.5}{100}\right)^2$

$A = 25,000 \times \left(1 + 0.025\right)^2$

$A = 25,000 \times (1.025)^2$

$A = 25,000 \times 1.050625$

$A = 26,265.625$

Step 2: Calculate the compound interest ($CI$):

$CI = A - P$

$CI = 26,265.625 - 25,000$

$CI = 1,265.625$

Final Answer:

The compound interest after 2 years is ₹1,265.63.

Would you like me to provide detailed steps for better understanding or solve any related problems? Here are 5 related questions for practice:

1. What would be the compound interest if the rate of interest were 5% per annum for 2 years?
2. If ₹50,000 were invested at 2.5% annual interest for 3 years, what would be the compound interest?
3. How does compound interest differ from simple interest for the same principal, rate, and time period?
4. What is the formula for compound interest when compounding is done semi-annually or quarterly?
5. What would be the total amount if ₹10,000 were invested for 1 year at 8% per annum compounded annually?

Tip: Always double-check the compounding frequency in the problem, as it can significantly affect the interest calculation!