Question

adam invested $12,000 in a six-year cd that paid 7.1% interest, but later needed to withdraw $2,500 early. if the cd’s penalty for early withdrawal was eighteen months’ worth of interest on the amount withdrawn, how much of a penalty did adam pay?
a. $138.89
b. $177.50
c. $266.25
d. $319.50

please select the best answer from the choices provided

a
b
c
d

Explanation:

Step1: Recall Simple Interest Formula

The simple interest formula is $I = P \times r \times t$, where $P$ is principal, $r$ is annual interest rate (decimal), $t$ is time in years.

Step2: Convert Time to Years

18 months is $\frac{18}{12} = 1.5$ years.

Step3: Identify Values

$P = \$2500$, $r = 7.1\% = 0.071$, $t = 1.5$.

Step4: Calculate Interest (Penalty)

Substitute into formula: $I = 2500 \times 0.071 \times 1.5$.
First, $2500 \times 0.071 = 177.5$. Then, $177.5 \times 1.5 = 266.25$.

Answer:

c. $266.25$