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 Assume that if funds are withdrawn before the CD matures, the early withdrawal fee is 3 months' interest.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?
- \$1.25
- \$3.75
- \$3.13
- \$6.25
Hint: If you ignore the compounding, how much interest is collected in one year? How much is one quarter of that?