SOLUTION: Katrina wants to buy a CD for $1000 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 Assume that if funds are withdrawn before the CD matures, the early

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Question 1138049: Katrina wants to buy a CD for $1000 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 Assume that if funds are withdrawn before the CD matures, the early withdrawal fee is 3 months' interest.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
Answer by Theo(13342) About Me  (Show Source):
You can put this solution on YOUR website!
the withdrawal pentlties for different banks are different.

this makes it difficult to answer your question.

here's a reference.

https://www.fool.com/knowledge-center/how-to-calculate-the-penalty-on-an-early-withdrawa.aspx

if the early withdrawl penalty is 3 months interest, and if the penalty is applied to the original value of the CD, then i would think the penalty would be equal to .00625 * 1000 = 6.25 dollars.

that, however, is highly dependent on the policy of the bank from where you bought the CD, as explained in the reference.

the interest rate of .00625 was calculated as follows:

2.5 percent interest rate per year / 100 = .025 interest rate per year / 4 = .00625 interest rate per quarter of a year.