Question

I. Ahmed asked his bank to make him a three mont ths time deposits to start on the for first of April service officer at the bank that the applicable interest rate wou if the an amount of LE1,000,000. He was told by the customer and be 8% p.a. a apply deposit is broken a penalty of 2%pa below the contracted rate 300,000 on May 15 he went to the bank and asked to withdraw the 300,000. What is the amount of interest th deserves on May 157 Had he left the deposit to mature at the end of the three months what would his interest be?

Answer 1

Given:

Principal amount = LE 1,000,000

Time (t) for the Time deposit= 3 Months

Interest Rate = 8% p.a (p.a is per annum/yearly/annually)

Penalty if time deposit broken before maturity (here 3 months) = 2%p.a

Part 1)

Ahmed broke the deposit in 1.5 months due to some urgent requirement, so we will calculate the interest he received for 1.5 months and we will then subtract the penalty he has to pay for breaking time deposit before maturity.

Interest received for 1.5 months = ((0.08/12)*1.5) = 0.01 (divide by 12 months and multiply by number of months time deposit retained).
Amount received as Interest= LE 1,000,000 * 0.01 = LE 10,000

Penalty is stated to be 2% p.a below the contracted rate (here it is 8% p.a in the contract) = 6%
Penalty = ((0.06/12)*1.5)= 0.0075
Amount paid as penalty= LE 1,000,000 * 0.0075 = LE 7,500

So, the amont of interest he deserves on May 15 = (Interest as per contract- Penalty for breaking the time deposit contract)

Answer : Interest on May 15= (LE 10,000 - LE 7,500)= LE 2,500

Part 2)

In case, he would have left the time deposit to mature for 3 months, he would have received interest for 3 months and no penalty would have been levied.

Interest received for 3 months = ((0.08/12)*3) = 0.02 (divide by 12 months and multiply by number of months time deposit retained).
Answer: Amount received as Interest at end of 3 months = LE 1,000,000 * 0.02 = LE 20,000