Question

Doris put $4000 in a 2 year cd paying 6% interest, compounding monthly. after 2 years, she withdrew all her money. what was the amount of the withdraw?

Answer 1

Value after two years: P(2) = 4000(1.005)^24 = **** 4508.64 ***

Answer 2

For the answer to the question above asking what was the amount of the withdraw if Doris put $4000 in a 2-year cd paying 6% interest, compounding monthly. after 2 years, she withdrew all her money?

First year Interest: I(1) = 4000[(1.005)^12 - 1] = 246.71 = penalty for early withdrawal
Value after two years: P(2) = 4000(1.005)^24 = 4508.64

Value after 2 years with penalty: V = 4000(1.005^24 - 1.005^12 + 1) = $4261.93