Question

Blanche bought a 5-year cd for $7100 with an apr of 2.8%, compounded quarterly, but she wants to take all her money out 9 months early. The early redemption fee for the cd is 3 months' interest on the original principal. What is the periodic interest rate of the cd

Answer 1

The money she will end up earning in interest on the cd = $11,352.90

Explanation:

The formula for getting the accumulated amount(compounded) is;

`A =P(1+(r)/(n))^n*t`

Where

A = Accumulated amount

P = principle (deposit)

r = interest rate and

n = no of times interest applied per time period.

The interest is compounded quarterly so in one year it will be 4 times

In 5 years

n = (5×4)-3 = 17 (as she will withdraw 3 month before the completion of five years)

A =
`7100(1+(2.8)/(100) )`^17

= 7100( 1 + 0.028)^17

= 7100(1.028)^17

= 7100 * 1.599

= 11,352.90

Therefore the money she will end up earning in interest on the cd = $11,352.90