Question

Adam invested $12,000 in a six-year CD that paid 7.1% interest, but later needed to withdraw $2,500 early. If the CD's penalty for early withdrawal was eighteen months' worth of interest on the amount withdrawn, how much of a penalty did Adam pay?a. $138.89b. $177.50c. $266.25d. $319.50

Answer 1

C

Explanation:

The amount Adam invested in a six years CD was $12,000 was 7.1%

Adam made a withdrawal of $2500 early. The early withdrawal was worth eighteen months of interest on the amount withdrawn.

Monthly interest = 7.1% / 12

= 0.59%

The interest for 18 months will be

(7.1% /12)18

= 10.65%

The penalty for withdrawing early was 18 months worth the interest on the amount withdrawn

= 2500 * 10.65%

= 266.25

This means Adam needs to pay a penalty of $266.25 for withdrawing early