Certificates of deposit, Certificates of deposit (CDs) are

Certificates of deposit

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Reference no: EM131952803

Certificates of deposit (CDs) are short- to medium-term investment instruments issued by banks which provides a fixed rate of interest for a period of time. CDs offer stability in interest earned but have penalty for early withdrawal.

A 1-year CD pays a nominal rate of interest of 8% compounded quarterly. You are offered two options of penalty for early withdrawal:

a) loss of 3-month interest,

b) a reduction in the nominal rate of interest to 6%

if you wish to withdraw after 9 months, which option would you choose?

Reference no: EM131952803

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