For compound interest, the amount is given by A = P(1 + R/100)ᵗ. Here P = 10,000, R = 5% and t = 2 years. This gives A = 10,000 × (1.05)². The square of 1.05 is 1.1025, so the amount becomes 10,000 × 1.1025 = ₹11,025. This includes both the original principal and the interest earned over two years.
Option A:
Option A, ₹10,500, represents the amount after one year of compound or simple interest at 5%, not two years. It misses the second period of compounding.
Option B:
Option B, ₹11,000, may come from incorrectly adding 5% of 10,000 twice and ignoring the interest on interest, which is the essence of compounding.
Option C:
Option C, ₹11,250, overestimates the effect of compounding and does not match the precise factor (1.05)². It might arise from using an incorrect growth factor.
Option D:
Option D uses the exact compounding formula and incorporates the second year’s interest on the first year’s interest. It therefore gives the correct accumulated amount of ₹11,025.
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