Orlando invested $16,000 in an eight-year CD bearing 6.5% simple annual interest, but needed to withdraw $3,500 after five years. If the CD's penalty for early withdrawal was one year's worth of interest on the amount withdrawn, when the CD reached maturity, how much less money did Orlando earn total than if he had not made his early withdrawal?

Question

Mathematics

Lilian

31 October, 23:38

Orlando invested $16,000 in an eight-year CD bearing 6.5% simple annual interest, but needed to withdraw $3,500 after five years. If the CD's penalty for early withdrawal was one year's worth of interest on the amount withdrawn, when the CD reached maturity, how much less money did Orlando earn total than if he had not made his early withdrawal?

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Answers (1)

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Rocco Singh · Answer 1

If Orlando did not make the early withdrawal, the amount of money he supposed to have is,

F = $16,000 + 0.065 ($16,000) (8) = $24,320

While making the early withdrawal only earned him,

F1 = (16,000) + (0.065) ($16,000) (8) - $3,500 - ($3,500) (0.065) = $20,592.5

The difference of two amounts are $3727.5.