Question

Theresa Mitsoto invested $3,500 in a 3-year CD that paid 6.5% annual interest. She cashed out the CD at the end of two years with an early withdrawal penalty of 3 months simple interest. What penalty did Theresa pay?

Answer 1

$56.875

Explanation:

Given that :

Amount invested = principal, p = 3500

Interest rate, r = 6.5% = 0.065

Penalty on withdrawal = 3 month simple interest

Simple interest = principal * rate * time

Time = 3 months = 3/12 = 0.25 years

Hence,

Simple interest = 3500 * 0.065 * 0.25

Simple interest = $56.875

Hence, penalty paid = $56.875