Question

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 If the CD’s penalty for early withdrawal was one year’s worth of interest on the amount withdrawn, when the CD reached maturity, how much less money did Orlando earn total than if he had not made his early withdrawal? a. $227.50 b. $682.50 c. $910.00 d. $455.00

Answer 1

Its C

Explanation:

Answer 2

Therefore, the correct option is OPTION C.

Explanation:

If Orlando had not made his early withdrawal, the amount of money he would have earned is:

F = 0.065($16,000)(8) = $8.320

Given that he withdraw $3500, he now earns:

F1 = (0.065)($16,000)(5) + ($12,500)(0.065)(3)

F1 = $5200 + $2437.5 = $7637.5

And now we have to take into acount the year of penalty, which is one year’s worth of interest on the amount withdrawn.

Penalty= $3500(0.065)(1) = $227.5

So the total money he earns now is: $7637.5 - $227.5 = $7410

Then, the amunt of money he could have earn but he didn't is:

Money = $8.320 - $7410 = $910

Therefore, the correct option is OPTION C.