Question

A certificate of deposit will often result in 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, 4 percent CD?

Answer 1

Answer:

The amount worth $133 for the prior withdrawal

Explanation:

The amount of annual interest is computed as:

Annual Interest = Withdrawal Amount × Percentage of Certificate Deposit (CD)

where

Withdrawal Amount is $20,000

Percentage of Certificate Deposit (CD) is 4%

Putting the values above:

Annual Interest = $20,000 × 4%

= $800

The amount of Penalty is computed as:

Penalty amount = 2 months of Annual Interest

= 2/ 12 × $800

= $133.33 or $133