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timama [110]
3 years ago
5

Amber borrows $1,450 from the bank. If she repays the loan in 3 years, the annual interest rate is 5%, compounded annually. Howe

ver, if she can repay the loan in 2 years, the annual rate is 3.5%, compounded annually. How much interest will Amber save by repaying the loan in 2 years? (to the nearest dollar)
Mathematics
2 answers:
andreev551 [17]3 years ago
5 0

Given that Amber borrows $1,450 from the bank.

She has two options to pay the loan amount. Pay in 3 years or in 2 years.


Calculation of interest for payment in 3 years.

Loan amount P=1450

Interest rate r=5%=0.05

Time t=3 years

Interest is compounded annually so we will use compound interest formula

A=P(1+r)^t

Plug the given value

A=1450*(1+0.05)^3

A=1450*(1.05)^3

A=1450*1.157625

A=1678.55625

Interest = A-P=1678.55625-1450= 228.55625

---

Calculation of interest for payment in 2 years.


Loan amount P=1450


Interest rate r=3.5%=0.035


Time t=2 years


Interest is compounded annually so we will use compound interest formula


A=P(1+r)^t


Plug the given value


A=1450*(1+0.035)^2


A=1450*(1.035)^2


A=1450*1.071225


A=1553.27625


Interest = A-P=1553.27625-1450= 103.27625


---

Now we just have to find the difference of interest in both cases

228.55625-103.27625 = 125.28

Hence final answer is approx $125.

Step2247 [10]3 years ago
3 0
The answer is $126 the asked for 20 charaters so
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