Two options of penalty for early withdrawal

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Certificates of deposit (CDs) are short- to medium-term investment instruments issued by banks which provides vides 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 m3-monthonth 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: EM133129136

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