irene invested $27,000 in a twelve - year cd bearing 8.0% interest, but needed to withdraw $6,000 after…

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 if the cds penalty for early withdrawal was eighteen months worth of interest on the amount withdrawn, when the cd reached maturity, how much less money did irene earn total than if she had not made her early withdrawal?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

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 if the cds penalty for early withdrawal was eighteen months worth of interest on the amount withdrawn, when the cd reached maturity, how much less money did irene earn total than if she had not made her early withdrawal?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

Answer

Explanation:

Step1: Calculate 18 - month interest on $6000

The annual - interest rate $r = 8.0%=0.08$. The time $t=\frac{18}{12}=1.5$ years. Using the simple - interest formula $I = Prt$, where $P = 6000$, we have $I_1=6000\times0.08\times1.5 = 720$.

Step2: Calculate the interest that $6000 would have earned from year 3 to year 12

The time from year 3 to year 12 is $t_2=12 - 3=9$ years. Using the simple - interest formula $I = Prt$ with $P = 6000$ and $r = 0.08$, we get $I_2=6000\times0.08\times9=4320$.

Step3: Calculate the total loss of earnings

The total amount of money Irene earned less is the sum of the penalty and the lost interest, $I = I_1+I_2$. So $I=720 + 4320=5040$.

Answer:

d. $$5,040$