Orlando invested $16,000 in an eight-year CD bearing 6.5% simple annual interest, but needed to withdraw $3,500 after five years. If the CD's penalty for early withdrawal was one year's worth of interest on the amount withdrawn, when the CD reached maturity, how much less money did Orlando earn total than if he had not made his early withdrawal?

Question

Miriam Riddle

Mathematics

10 March, 14:20

Orlando invested $16,000 in an eight-year CD bearing 6.5% simple annual interest, but needed to withdraw $3,500 after five years. If the CD's penalty for early withdrawal was one year's worth of interest on the amount withdrawn, when the CD reached maturity, how much less money did Orlando earn total than if he had not made his early withdrawal?

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Answers (1)

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Sariah Hardin · Answer 1

If Orlando did not make the early withdrawal, the amount of money he supposed to have is,

F = $16,000 + 0.065 ($16,000) (8) = $24,320

While making the early withdrawal only earned him,

F1 = (16,000) + (0.065) ($16,000) (8) - $3,500 - ($3,500) (0.065) = $20,592.5

The difference of two amounts are $3727.5.