Question

A bank offers a four year cd with an interest rate of 2.75%. The penalty for early withdrawal from the CD is nine months of simple interest, calculated on the amount withdrawn. Rachel invests $6,200. If she withdraws $2250 after one year, how much will the penalty be? Round answer to the nearest dollar. a. $46 b. $56 c. $128 d. $557

Answer 1

Answer:

penalty is 46

Step-by-step explanation:

Answer 2

We have been given that a bank offers a four year cd with an interest rate of 2.75%. The penalty for early withdrawal from the CD is nine months of simple interest, calculated on the amount withdrawn. Rachel withdraws $2250 after one year. We are asked to find the amount of penalty.

We will use simple interest formula to solve our given problem.

$I=Prt$, where,

I = Amount of interest,

P = Principal amount,

r = Annual interest rate in decimal form,

t = Time in years.

$2.75\%=\frac{2.75}{100}=0.0275$

Since our given time is in months, so we need to convert 9 months into year.

1 year = 12 months

9 months = $\frac{9}{12}\text{ year}=0.75\text{ year}$

Upon substituting our given values in simple interest formula, we will get:

$I=\ 2250\times 0.0275\times 0.75$

$I=\ 46.40625$

Upon rounding to nearest dollar, we will get:

$I\approx \ 46$

Therefore, the penalty will be $46 and option 'a' is the correct choice.