Question

Amber borrows $5,000 from the bank. If she repays the loan in 5 years, the annual interest rate is 8%, compounded annually. However, if she can repay the loan in 3 years, the annual rate is 6.5%, compounded annually. How much interest will Amber save by repaying the loan in 3 years? (to the nearest dollar)

A) $1,152
B) $1,307
C) $583
D) $971

Answer 1

The answer is (B) $1,307

Explanation:

First you would plug the $5000, 5 Years and 8% Interest(Compound) into your Formula - A=P(1+r)t

A=5000(1+.08)5

Which the interest is $2346.64

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Next you would plug $5000, 3 Years and 6.5% Interest(Compound) Into your Formula - A=P(1=r)t

A=5000(1+.065)3

Which the future value is $1039.75

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Finally you would subtract $2346.64 by $1039.75 and then round the difference to the nearest dollar.