irene invested $27,000 in a twelve - year cd ...
irene invested $27,000 in a twelve - year cd bearing 8.0% interest, but needed to withdraw $6,000 after three years. if the cds penalty for early withdrawal was eighteen months worth of interest on the amount withdrawn, when the cd reached maturity, how much less money did irene earn total than if she had not made her early withdrawal? a. $3,600 b. $4,320 c. $720 d. $5,040 please select the best answer from the choices provided
Answer
# Explanation:
## Step1: Calculate the interest rate for 18 - months
The annual interest rate $r = 8\%=0.08$. For 18 months ($t = 1.5$ years), the simple - interest formula is $I = Prt$.
## Step2: Calculate the penalty for the early withdrawal
The amount withdrawn $P = 6000$. Using the simple - interest formula $I=Prt$, we substitute $P = 6000$, $r = 0.08$, and $t = 1.5$. So $I=6000\times0.08\times1.5=720$.
## Step3: Calculate the interest that the $6000$ would have earned from the 4th year to the 12th year (9 years)
Using the simple - interest formula $I = Prt$ again, with $P = 6000$, $r = 0.08$, and $t = 9$. So $I=6000\times0.08\times9 = 4320$.
## Step4: Calculate the total loss of interest
The total loss of interest is the sum of the penalty and the interest that the withdrawn amount would have earned in the remaining years of the CD. The total loss $L=720 + 4320=5040$.
# Answer:
D. $5,040$