Question

Neil Richards has $2,000 in a one-year time-deposit account that pays an annual interest rate of 2%. Neil cashed out the CD early. The bank charged Neil 3 months' simple interest for the early withdrawal. What penalty did Neil pay?

Answer 1

Neil paid a penalty of $10 for early withdrawal.

Step-by-step explanation:

To find the penalty that Neil paid for cashing out his CD early, we need to calculate the simple interest for 3 months.

The formula for simple interest is: Interest = Principal x Rate x Time

Given that Neil had $2,000 in his CD account, an annual interest rate of 2%, and he withdrew it early after 3 months, we can plug in the values to find the penalty.

Interest = $2,000 x 0.02 x (3/12)

= $10

Therefore, Neil paid a penalty of $10 for early withdrawal.