Question

Orlando invested $16,000 in an eight-year CD bearing 6.5% interest, but needed to withdraw $3,500 after five years. If the CD’s penalty for early withdrawal was one year’s worth of interest on the amount withdrawn, when the CD reached maturity, how much less money did Orlando earn total than if he had not made his early withdrawal?

Answer 1

given:
Principal = 16,000
term = 8 years
rate = 6.5%
pre-terminated = 5 years

S.I = 16,000 * 6.5% * 8 years
S.I = 8,320 total interest earned in 8 years
total = 16,000 + 8,320 = 24,320

S.I = 16,000 * 6.5% * 5 years
S.I = 5,200 total interest earned in 5 years

S.I = 3,500 * 6.5% * 1 year
S.I = 227.50 one year's worth of interest on amount withdrawn.

16,000 + 5,200 = 21,200
21,200 - 3,500 - 227.50 = 17,472.50 new principal amount

S.I. = 17,472.50 * 6.5% * 3 years
S.I = 3,407.14 total interest on the remaining 3 years
Total = 17,472.50 + 3,407.14 = 20,879.64

24,320 - 20,879.64 = 3,440.36 less money