Suppose you buy a CD for $400 that 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 Assume that if funds are withdrawn before the CD matures, the early withdrawal fee is 3 months' interest. What is the early withdrawal fee on this account?

A. $6.25
B. $2.50
C. $1.25
D. $3.13

The withdrawal fee will not take the compund rate, so, you should apply the usual formula for not compound rate,
400⋅0.025/12⋅3=2.50

Where we divide the APR to adapt to a monthly base, and then multiply the number of months.

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learnerearner learnerearner · Answer 2 · 2018-08-12T22:31:54+02:00

learnerearner learnerearner

12-08-2018

The answer is $2.50

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Suppose you buy a CD for $400 that 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 Assume that if funds are withdrawn before the CD matures, the early withdrawal fee is 3 months' interest. What is the early withdrawal fee on this account? A. $6.25 B. $2.50 C. $1.25 D. $3.13

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Suppose you buy a CD for $400 that 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 Assume that if funds are withdrawn before the CD matures, the early withdrawal fee is 3 months' interest. What is the early withdrawal fee on this account?

A. $6.25
B. $2.50
C. $1.25
D. $3.13