Orlando invested $16,000 in an eight-year cd bearing 6.5% 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 if the cd’s penalty for early withdrawal was one year’s worth of interest on the amount withdrawn, when the cd reached maturity, how much less money did orlando earn total than if he had not made his early withdrawal? a. $227.50 b. $682.50 c. $910.00 d. $455.00

Given:
Principal = 16,000
interest rate = 6.5%
term = 8 years

Interest = 16,000 * 6.5% * 8 yrs
I = 8,320  interest earned for the whole 8 years

Total = 16,000 + 8,320 = 24,320

Pretermination. 5 years
Interest = 16,000 * 6.5% * 5 yrs
I = 5,200

Total = 16,000 + 5,200 = 21,200

Amount withdrawn = 3,500
penalty = 3,500 * 6.5% * 1 yr = 227.50

New principal = 16,000 - 3,500 = 12,500
Interest = 12,500 * 6.5% * 3 yrs 
I = 2,437.50

Interest w/o pretermination = 8,320 
Interest w pretermination = 5,200 + 2,437.50 = 7,637.50

Difference = 8,320 - 7,637.50 = $682.50

Orlando earns less money if he had not made his early withdrawal, the value of the amount lost is B.) $682.50

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