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30 October, 02:28

A certificate of deposit will often result in a penalty for withdrawing funds before the maturity date. If the penalty involves two months of interest, what would be the amount for early withdrawal on a $20,000, 4 percent CD?

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  1. 30 October, 04:34
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    The amount worth $133 for the prior withdrawal

    Explanation:

    The amount of annual interest is computed as:

    Annual Interest = Withdrawal Amount * Percentage of Certificate Deposit (CD)

    where

    Withdrawal Amount is $20,000

    Percentage of Certificate Deposit (CD) is 4%

    Putting the values above:

    Annual Interest = $20,000 * 4%

    = $800

    The amount of Penalty is computed as:

    Penalty amount = 2 months of Annual Interest

    = 2 / 12 * $800

    = $133.33 or $133
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