Question

Blanche bought a 5-year cd for $7100 with an apr of 2.8%, compounded quarterly, but she wants to take all her money out 9 months early. The early redemption fee for the cd is 3 months' interest on the original principal. What is the periodic interest rate of the cd

Answer 1

Answer:

The money she will end up earning in interest on the cd = $11,352.90

Step-by-step explanation:

The formula for getting the accumulated amount(compounded) is;

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

Where

A = Accumulated amount  

P = principle (deposit)

r = interest rate and

n = no of times interest applied per time period.  

The interest is compounded quarterly so in one year it will be 4 times

In 5 years

n = (5×4)-3 = 17  (as she will withdraw 3 month before the completion of five years)

A = $7100(1+\frac{2.8}{100} )$^17

  = 7100( 1 + 0.028)^17

  =  7100(1.028)^17  

   = 7100 * 1.599

  = 11,352.90

Therefore the money she will end up earning in interest on the cd = $11,352.90