Question

A certificate of deposit often charges a penalty for withdrawing funds before the maturity date. If the penalty involves two months of interest, what would be the amount for early withdrawal on a $20,000, 6 percent CD? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

The penalty will be worth $200.

Step-by-step explanation:

The certificate of deposit is worth $20,000.

The interest rate on it is 6%.

The penalty on early withdrawal is 2 months of interest.

The annual interest

`= Annual\ interest\ rate\ *\ Investment`

`= 0.06\ *\ $20,000`

`= \$ 1,200`

The penalty will be

`= 2\ months\ of\ interest`

`= (2)/(12)\ * Annual\ interest`

`=(2)/(12)\ *\ \$ 1,200`

`= \$ 200`