Question

Rachel invested $15,000 in a nine-year CD giving 8.5% interest, but needed to withdraw $4,000 after two years. If the CD's penalty for withdrawal was six months' worth of interest on the amount withdrawn, how much money did Rachel have when the CD reached maturity, not including the amount she withdrew? Round answer to the nearest whole dollar.

Answer 1

Explanation:

The answer is 19,925

Answer 2

Given:
Principal = 15,000
interest = 8.5%
term = 9 years

I = 15,000 * 8.5% * 9 years = 11,475
total amount after 9 years = 15,000 + 11,475 = 26, 475

Preterm after 2 years. wdl of 4,000. penalty is 6 months interest of 4,000

I = 4,000 * 8.5% * 6/12 = 170 amount of penalty
I = 15,000 * 8.5% * 2 years = 2,550 interest earned for 2 years

15,000 + 2,550 = 17,550
17,550 - 4,000 - 170 = 13,380 amount to be invested for another 7 years

I = 13,380 * 8.5% * 7 years = 7,961.10
total amount after 9 years with pretermination
13,380 + 7,961.10 = 21,341.10