0
$\begingroup$

Suppose you buy a CD for 1000 that earns 2.5% APR and is compounded quarterly. The CD matures in 5 years. Assume that if funds are withdrawn before the CD matures, the early withdrawal fee is 3 months' interest. What is the early withdrawal fee on this account?

  1. \1.25
  2. \3.75
  3. \3.13
  4. \$6.25
  • 0
    Wouldn't the amount depend on when the early withdrawal occurred? (One of the choices gives the smallest possible value it could be.)2012-12-18

1 Answers 1

1

Hint: If you ignore the compounding, how much interest is collected in one year? How much is one quarter of that?