Question

Suppose you invest $25,000 in a one-year certificate of deposit (CD) that pays simple interest at 4.25% annually. The CD is cashable at any time, with interest payable on a prorated basis. If you cashed the CD after seven months, how much would you earn in interest?

A $556.25

B $656.25

C $612.50

D $468.75

Answer 1

To find the amount of interest earned on a CD, use the formula: Interest = Principal × Rate × Time. Plugging in the values, the interest earned in this case would be $656.25.

Step-by-step explanation:

To find the amount of interest earned, we can use the formula: Interest = Principal × Rate × Time. In this case, the principal is $25,000, the rate is 4.25% (or 0.0425 as a decimal), and the time is 7 months (or 7/12 of a year).

Plugging in the values, we have:

Interest = $25,000 × 0.0425 × (7/12) = $656.25

Therefore, you would earn $656.25 in interest if you cashed the CD after seven months.