Question

A certificate of deposit often charges a penalty for withdrawing funds before the maturity date. If the penalty involves two months of interest, what would be the amount for early withdrawal on a $20,000, 6 percent CD? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

The penalty will be worth $200.

Explanation:

The certificate of deposit is worth $20,000.

The interest rate on it is 6%.

The penalty on early withdrawal is 2 months of interest.

The annual interest

$= Annual\ interest\ rate\ \times\ Investment$

$= 0.06\ \times\ 20,000$

$= \ 1,200$

The penalty will be

$= 2\ months\ of\ interest$

$= \frac{2}{12}\ \times Annual\ interest$

$=\frac{2}{12}\ \times\ \ 1,200$

$= \ 200$