Question

A bank offers a four year cd with an interest rate of 2.75%. The penalty for early withdrawal from the CD is nine months of simple interest, calculated on the amount withdrawn. Rachel invests $6,200. If she withdraws $2250 after one year, how much will the penalty be? Round answer to the nearest dollar. a. $46 b. $56 c. $128 d. $557

Answer 1

penalty is 46

Explanation:

Answer 2

We have been given that a bank offers a four year cd with an interest rate of 2.75%. The penalty for early withdrawal from the CD is nine months of simple interest, calculated on the amount withdrawn. Rachel withdraws $2250 after one year. We are asked to find the amount of penalty.

We will use simple interest formula to solve our given problem.

`I=Prt`, where,

I = Amount of interest,

P = Principal amount,

r = Annual interest rate in decimal form,

t = Time in years.

`2.75\%=(2.75)/(100)=0.0275`

Since our given time is in months, so we need to convert 9 months into year.

1 year = 12 months

9 months =
`(9)/(12)\text{ year}=0.75\text{ year}`

Upon substituting our given values in simple interest formula, we will get:

`I=\$2250* 0.0275* 0.75`

`I=\$46.40625`

Upon rounding to nearest dollar, we will get:

`I\approx \$46`

Therefore, the penalty will be $46 and option 'a' is the correct choice.