Question

suppose you buy a CD for $500 that's earns 3% APR and is compounded quarterly. The CD matures in 3 years. Assume that if funds are with drawn before the CD matures, the early withdrawal fee is 3 months interest. what is the early withdrawal fee on this account?

Answer 1

Compounded quarterly means that the interest accrued every 3 months
Or 4 times a year
So the early withdrawal fee on this accoun is
500×0.03×(1÷4)=3.75

Answer 2

Answer:

The answer is $3.75

Step-by-step explanation:

P = $500

r = 3%   = 0.03

n = 4

t =$3/12=1/4$

Now compound interest formula is :

$A=P(1+\frac{r}{n})^{nt}$

Putting the values in formula we get,

$A=500(1+\frac{0.03}{4})^{4*1/4}$

$A=500(1.0075})^{1}$

= $503.75

Now, withdrawal fee = amount paid - principle

=> $503.75-500=3.75$ dollars.

So, the answer is $3.75.