orlando invested $16,000 in an eight - year cd bearing 6.5% simple annual interest, but needed to withdraw…

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 if the cds penalty for early withdrawal was one years worth of interest on the amount withdrawn, when the cd reached maturity, how much less money did orlando earn total than if he had not made his early withdrawal?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

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 if the cds penalty for early withdrawal was one years worth of interest on the amount withdrawn, when the cd reached maturity, how much less money did orlando earn total than if he had not made his early withdrawal?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

Answer

Explanation:

Step1: Calculate the interest on the withdrawn amount for 3 years

The interest rate $r = 6.5%=0.065$, and the withdrawn amount $P = 3500$. The time $t = 3$ years. The simple - interest formula is $I=P\times r\times t$. So, $I_1=3500\times0.065\times3$. $I_1 = 3500\times0.065\times3=3500\times0.195 = 682.5$

Step2: Calculate the penalty for early - withdrawal

The penalty is one - year's worth of interest on the amount withdrawn. Using the simple - interest formula $I = P\times r\times t$ with $t = 1$ year, $P = 3500$ and $r=0.065$. So, $I_2=3500\times0.065\times1=227.5$

Step3: Calculate the total loss

The total loss is the sum of the interest not earned on the withdrawn amount for the remaining 3 years and the penalty. $L=I_1 + I_2$. $L=682.5+227.5=910$

Answer:

c. $$910.00$