Step 1: Write the initial and final masses.
Initial mass is
\[
m_0=1\ \text{kg}=1000\ \text{g}.
\]
Final mass is
\[
m=125\ \text{g}.
\]
Step 2: Find the fraction remaining.
\[
\frac{m}{m_0}
=
\frac{125}{1000}.
\]
\[
=
\frac{1}{8}.
\]
Now,
\[
\frac{1}{8}=\left(\frac{1}{2}\right)^3.
\]
So, the substance has passed through
\[
3
\]
half-lives.
Step 3: Use the half-life value.
Given half-life is
\[
T_{1/2}=12.5\ \text{years}.
\]
Therefore, total time is
\[
N=3T_{1/2}.
\]
\[
N=3\times12.5.
\]
\[
N=37.5\ \text{years}.
\]
Step 4: Final conclusion.
Hence, the value of \(N\) is
\[
\boxed{37.5\ \text{years}}
\]
Therefore, the correct option is
\[
\boxed{(1)}
\]