adam invested $12,000 in a six - year cd that paid 7.1% interest, but later needed to withdraw $2,500 early…

adam invested $12,000 in a six - year cd that paid 7.1% interest, but later needed to withdraw $2,500 early. if the cds penalty for early withdrawal was eighteen months worth of interest on the amount withdrawn, how much of a penalty did adam pay?\na. $138.89\nb. $177.50\nc. $266.25\nd. $319.50\nplease select the best answer from the choices provided

adam invested $12,000 in a six - year cd that paid 7.1% interest, but later needed to withdraw $2,500 early. if the cds penalty for early withdrawal was eighteen months worth of interest on the amount withdrawn, how much of a penalty did adam pay?\na. $138.89\nb. $177.50\nc. $266.25\nd. $319.50\nplease select the best answer from the choices provided

Answer

Explanation:

Step1: Convert annual - interest rate to monthly rate

The annual interest rate is $7.1%=0.071$. The monthly interest rate $r$ is $\frac{0.071}{12}$.

Step2: Calculate the penalty

The amount withdrawn is $P = 2500$, and the time period for the penalty is $t = 18$ months. The simple - interest formula is $I=P\times r\times t$. Substitute $P = 2500$, $r=\frac{0.071}{12}$, and $t = 18$ into the formula: [ \begin{align*} I&=2500\times\frac{0.071}{12}\times18\ &=2500\times0.071\times\frac{18}{12}\ &=2500\times0.071\times1.5\ &=266.25 \end{align*} ]

Answer:

C. $$266.25$