Tony invested $5,500 in a four-year CD that paid 4.8% interest, but later needed to withdraw $475 early. If the CD's penalty for early withdrawal was three months' worth of interest on the amount withdrawn, how much of a penalty did Tony pay?

16.50 dollars is the amount of penalty Tony will pay for his early withdrawal.

Solution:

Step 1: Multiply 5500 dollars by 0.048 (interest rate) = Ans. 264 dollars

Step 2: Divide 264 dollars (product in step 1) by 48 months (4 years) = Ans. 5.5 dollars per month

Step 3: Multiply 5.5 dollars per month (quotient in step 2) by 3 months

Step 4: Answer is 16.50 dollars as penalty