Question

Ward finances $20,000 to purchase a car. If he gets a 2.5% interest rate regardless of loan length, how much interest will Ward save if he finances the $20,000 for 3 years rather than 5 years?

Answer 1

The answer is A

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Answer 2

You will use the formula to calculate simple interest for each period of time and then subtract the two amounts to find how much Ward will save.

I=prt

I = 20000 x 0.025 x 3
I = $1500 over 3 years

I = 20000 x 0.025 x 5
I = $2500 over 5 years

$2500-$1500 = $1000 in savings