A savings scheme offers compound interest annually. A woman deposits ₹10,000. At the end of the first year, the interest rate is 10%. In the second year, due to inflation, the interest rate rises to 12.5%, and in the third year, it drops to 8%. Calculate the total interest she earned at the end of 3 years.
Show answer & explanation
Correct answer: B
Explanation
Given:
Principal = ₹10,000
Interest rate for the first year = 10%
Interest rate for the second year = 12.5%
Interest rate for the third year = 8%
Interest = Compounded annually
By the formula:
Amount = P(1 + r/100)
Amount after the first year = 10,000 × 1.10 = 11,000
Amount after the second year = 11,000 × 1.125 = 12,375
Amount after the third year = 12,375 × 1.08 = 13,365
Total interest = 13,365 − 10,000 = 3,365
Total interest in 3 years = ₹3,365