orlando invested $16,000 in an eight - year c...
orlando invested $16,000 in an eight - year cd bearing 6.5% simple annual interest, but needed to withdraw $3,500 after five years. if the cds penalty for early withdrawal was one years worth of interest on the amount withdrawn, when the cd reached maturity, how much less money did orlando earn total than if he had not made his early withdrawal? a. $227.50 b. $682.50 c. $910.00 d. $455.00 please select the best answer from the choices provided
Answer
# Explanation:
## Step1: Calculate one - year interest on withdrawn amount
The formula for simple interest is $I = Prt$, where $P$ is the principal amount, $r$ is the annual interest rate, and $t$ is the time in years. Here, $P=\$3500$, $r = 0.065$ (since $6.5\%=0.065$) and $t = 1$. So, $I_1=3500\times0.065\times1=\$227.5$.
## Step2: Calculate the interest that the withdrawn amount would have earned in the remaining 3 years
The remaining time is $8 - 5=3$ years. Using the simple - interest formula again with $P = 3500$, $r=0.065$ and $t = 3$. So, $I_2=3500\times0.065\times3=3500\times0.195=\$682.5$.
## Step3: Calculate the total loss of interest
The total amount of money Orlando earned less is the sum of the penalty and the lost interest on the withdrawn amount for the remaining 3 years. $I = I_1+I_2=227.5 + 682.5=\$910$.
# Answer:
C. $910.00