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Svetllana [295]
3 years ago
8

Suppose you buy a CD for $1000 that earns 2.5% APR and is compounded

Mathematics
1 answer:
labwork [276]3 years ago
7 0

The early withdrawal fee on this account is $6.25

Step-by-step explanation:

Suppose you buy a CD for $1000

  • It earns 2.5% APR and is compounded  quarterly
  • The CD matures in 5 years
  • Assume that if funds are withdrawn  before the CD matures, the early withdrawal fee is 3 months' interest

We need to find the early withdrawal fee on this account

∵ The annual interest is 2.5%

- Change it to decimal

∵ 2.5% = 2.5 ÷ 100 = 0.025

∴ The annual interest rate is 0.025

∵ The interest is compounded quarterly

∴ The interest rate per quarter = 0.025 ÷ 4 = 0.00625

∵ The early withdrawal fee is 3 months' interest

∵ You buy the CD for $1000

∵ A quarter year = 3 months

∴ The early withdrawal fee = 1000 × 0.00625 = $6.25

The early withdrawal fee on this account is $6.25

Learn more:

You can learn more about the interest in brainly.com/question/11149751

#LearnwithBrainly

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