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Your gross income is $4,520.00/month. Your deductions are FICA (7.65%), federal tax withholding (11.75%), and state tax withholding (8.5%). Your fixed expenses are 30% of your realized income. You saved 5 months' worth in an emergency fund, placing 75% in a 60-day CD at a 5.25% APR and the rest in a regular savings account at a 3.8% APR. How much is the total interest earned between both accounts in 60 days?

a)$44.31

b)$59.06

c)$39.27

d)$41.19

User Lxg
by
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1 Answer

2 votes

Answer:

C

Explanation:

First, we need to calculate the net income after deductions:

FICA = 7.65% x $4,520.00 = $346.38

Federal tax withholding = 11.75% x $4,520.00 = $531.40

State tax withholding = 8.5% x $4,520.00 = $384.20

Total deductions = $346.38 + $531.40 + $384.20 = $1,262.98

Net income = $4,520.00 - $1,262.98 = $3,257.02

Next, we need to calculate the amount allocated for fixed expenses:

Fixed expenses = 30% x $3,257.02 = $977.11

The remaining amount that is available for savings is:

Savings = $3,257.02 - $977.11 = $2,279.91

The emergency fund is equal to 5 months' worth of fixed expenses, which is:

Emergency fund = 5 x $977.11 = $4,885.55

The amount placed in the CD is 75% of the emergency fund, which is:

CD = 75% x $4,885.55 = $3,664.16

The amount placed in the regular savings account is:

Savings account = $4,885.55 - $3,664.16 = $1,221.39

To calculate the interest earned in the CD in 60 days, we use the formula:

Interest = Principal x Rate x Time

where the rate is annual percentage rate (APR) divided by 365 (number of days in a year)

Interest earned in the CD = $3,664.16 x (5.25%/365) x 60 = $21.97

To calculate the interest earned in the regular savings account, we use the formula:

Interest = Principal x Rate x Time

where the rate is annual percentage yield (APY) divided by 365 (number of days in a year)

Interest earned in the regular savings account = $1,221.39 x (3.8%/365) x 60 = $17.30

Therefore, the total interest earned between both accounts in 60 days is:

$21.97 + $17.30 = $39.27

So the correct answer is (c) $39.27.

User Marcos Arruda
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