Tony invested $5,500 in a four-year CD that paid 4.8% interest, but later needed to withdraw $475 early. If the CD’s penalty for early withdrawal was three months’ worth of interest on the amount withdrawn, how much of a penalty did Tony pay?

a.
$5.70
b.
$22.80
c.
$60.30
d.
$66.00

Question

Tony invested $5,500 in a four-year CD that paid 4.8% interest, but later needed to withdraw $475 early. If the CD’s penalty for early withdrawal was three months’ worth of interest on the amount withdrawn, how much of a penalty did Tony pay?

a.
$5.70
b.
$22.80
c.
$60.30
d.
$66.00

Vocaloid · Answer

"penalty... was three month's worth of interest on the amount withdrawn"

interest rate is 4.8% (it doesn't really tell us whether this is annual or monthly but it's safer to assume this is yearly). 3 months is 1/4 of a year. so you'll be calculating 1 year's worth of interest on $475 and then dividing by 4