Question

Tony invested $5,500 in a four-year CD that paid 4.8% interest, but later needed to withdraw $475 early. If the CD’s penalty for early withdrawal was three months’ worth of interest on the amount withdrawn, how much of a penalty did Tony pay?

Answer 1

In order to find out the penalty paid we need to find 3 months of interest on 475 so the yearly interest is 4.8% and for 3 months the interest rate would be 1.048^3/12

In order to find the penalty we will find the interest

475*1.048^3/12=480.6

This amount is the interest plus the amount withdrawn so in order to find the penalty we will subtract the principal from this amount

480.6-475= 5.60

The penalty that Tony will pay will be $5.6

Step-by-step explanation: