Question

Tony invested $5,500 in a four-year CD that paid 4.8% interest, but later needed to withdraw $475 early. If the CD’s penalty for early withdrawal was three months’ worth of interest on the amount withdrawn, how much of a penalty did Tony pay?
a.
$5.70
b.
$22.80
c.
$60.30
d.
$66.00

Answer 1

Given:
principal: 5,500
term: 4 years
interest rate: 4.8% per annum
early wdl of 475

penalty is the 3 months interest of the amount withdrawn.

Interest = 475 * 4.8% * 3/12
Interest = 475 * 1.2%
interest = 5.7 is the amount of the penalty