To find the compound interest for the 3rd year, we first need to understand how compound interest works and how it accumulates over multiple years.
1. Given:
- Compound interest for the 2nd year = 25
- Interest rate = 4%
- Let the principal amount be P
2. The formula for compound interest is:
\( A = P \times \left(1 + \frac{r}{100}\right)^n \),
where:
- A is the amount after n years,
- P is the principal amount,
- r is the rate of interest per annum,
- n is the number of years.
3. For the 2nd year:
- Amount after 2 years = P × (1 + 0.04)^2
- Given that the compound interest for the 2nd year is 25, we can calculate:
- Compound interest for the 2nd year = Amount after 2 years - Principal
- 25 = P × (1.04)^2 - P
4. Solve the equation to find the principal amount (P).
5. Once you find the principal amount (P), you can then calculate the amount after 3 years using the formula:
- Amount after 3 years = P × (1.04)^3
6. Finally, to find the compound interest for the 3rd year:
- Compound interest for the 3rd year = Amount after 3 years - Principal
