Question

Rachel invested $15,000 in a nine-year CD giving 8.5% interest, but needed to withdraw $4,000 after two years. If the CD's penalty for withdrawal was six months' worth of interest on the amount withdrawn, how much money did Rachel have when the CD reached maturity, not including the amount she withdrew? Round answer to the nearest whole dollar.
a.
$19,925
b.
$8,795
c.
$19,795
d.
$12,965

Answer 1

Answer:

Option a )  $19,925

Step-by-step explanation:

$15,000 was invested for 9 years and then $4,000 was withdrawn after 2 years.

So, $11,000 was invested for entire 9 years and $4,000 was invested for 2 years.

Interest on $11,000 for 9 years @ 8.5 % = 11,000 X 9 X 8.5 % = $8,415

Interest on $4,000 for 2 years @ 8.5 % = 4,000 X 2 X 8.5 % = $680

Penalty for withdrawing $4,000 = 4000 X 8.5 % X 0.5 = $170

Total amount that Rachel will get on maturity = $11,000 + total interest - penalty = $11,000 + $8,415 + $680 - $170 = $19,925

Hope it helps.

Thank you !!