227k views
0 votes
Suppose you buy a CD for $500 that earns 3% APR and is compounded quarterly. The CD matures in 3 years. Assume that if funds are withdrawn before the CD matures, the early withdrawal fee is 3 months' interest. What is the early withdrawal fee on this account?

1 Answer

5 votes

Answer:

$3.75

Explanation:

I = Prt

I = $500·0.03·(3/12) = $3.75

The early-withdrawal fee is $3.75 for the first quarter.

_____

Each quarter after that, the principal amount will be larger, so the interest penalty will be larger. The fee would be the amount of interest that would be credited at the end of the next quarter, or at the end of the quarter currently in progress.

User AllirionX
by
8.3k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories