Question

A certificate of deposit will often result in a penalty for withdrawing funds before the maturity date. if the penalty involves two months of interest, what would be the amount for early withdrawal on a $20,000, 6% CD?

Answer 1

$200

Explanation:

On a $20,000 earning 6% per year, the amount of interest earned per year is:

`$20,000xx.06=$1200`

This means that per month the CD earns:

`($1200)/12=$100`

With the penalty being 2 months worth of interest, it works out to be:

`2xx$100=$200`