Leah Hagel bought a $4,000, 9-month certificate of deposit (CD) that would earn 7% annual simple interest. Three months before the CD was due to mature, Leah needed her CD money, so a friend agreed to lend her money and receive the value of the CD when it matured. If their agreement allowed the friend to earn a 11% annual simple interest return on her loan to Leah, how much did Leah receive from her friend? Round your answer to the nearest cent.
A) $4,325.78
B) $4,061.09
C) $3,990.52
D) $4,171.76
E) $3,922.36

Question

Leah Hagel bought a $4,000, 9-month certificate of deposit (CD) that would earn 7% annual simple interest. Three months before the CD was due to mature, Leah needed her CD money, so a friend agreed to lend her money and receive the value of the CD when it matured. If their agreement allowed the friend to earn a 11% annual simple interest return on her loan to Leah, how much did Leah receive from her friend? Round your answer to the nearest cent. ​
A) $4,325.78
B) $4,061.09
C) $3,990.52
D) $4,171.76
E) $3,922.36

Quizplus · Accepted Answer

The correct answer is A.The amount of interest Leah earned on the CD for 9 months is $4,000 x 7% x 9/12 = $210. The total amount Leah would have received if she had held the CD until maturity is $4,000 + $210 = $4,210. However, since she needed the money three months before maturity, she received only $4,000 + $210 x 3/9 = $4,061.09 from her friend.

Leah Hagel Bought a $4,000, 9-Month Certificate of Deposit (CD)