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Suppose you buy a CD for $1000 that earns 2.5% APR and is compounded quarterly. The CD matures in 5 years. Assume that if funds are withdrawn before the CD matures, the early withdrawal fee is 3 months' interest. What is the early withdrawal fee on this account?

  1. \$1.25
  2. \$3.75
  3. \$3.13
  4. \$6.25
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Please avoid titles in full caps, also try to make your titles hint on the content of the post. – Asaf Karagila Dec 18 '12 at 0:17
Wouldn't the amount depend on when the early withdrawal occurred? (One of the choices gives the smallest possible value it could be.) – David Mitra Dec 18 '12 at 0:49

Hint: If you ignore the compounding, how much interest is collected in one year? How much is one quarter of that?

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