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 If the CD’s penalty for early withdrawal was eighteen months’ worth of interest on the amount withdrawn, how much of a penalty did Adam pay?

Answer 1

  base on my calculation, the possible answer would be $266.25

Answer 2

Adam needs to pay $266.25.

Explanation:

Consider the provided information.

Adam invested $12,000 in a six-year CD that paid 7.1% interest, but later needed to withdraw $2,500 early.

The interest rate is 7.1%.

The monthly interest rate will be:
`(7.1\%)/(12)`

Now for 18 months the interest will be:

`(7.1\%)/(12)* 18=10.65\%`

The penalty for early withdrawal was eighteen months’ worth of interest on the amount withdrawn,

The withdrawal amount is 2,500 and the interest for 18 months is 10.65%

2,500×10.65%=25×10.65=266.25

Hence, Adam needs to pay $266.25 as penalty.