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23 August, 09:07

Suppose you buy a CD for $400 that earns 2.5% APR and is compounded quarterly. The CD matures in 5 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 Assume that if funds are withdrawn before the CD matures, the early withdrawal fee is 3 months' interest.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?

A. $6.25

B. $2.50

C. $1.25

D. $3.13

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Answers (1)
  1. 23 August, 13:03
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    The withdrawal fee will not take the compund rate, so, you should apply the usual formula for not compound rate,

    400⋅0.025/12⋅3=2.50

    Where we divide the APR to adapt to a monthly base, and then multiply the number of months.
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Home » Mathematics » Suppose you buy a CD for $400 that earns 2.5% APR and is compounded quarterly. The CD matures in 5 years. Assume that if funds are withdrawn before the CD matures, the early withdrawal fee is 3 months' interest.
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