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A saver places $1,000 in a certificate of deposit that matures after 20 years and that each year pays 4% interest, which is compounded annually until the certificate matures. a) How much interest will the saver earn if the interest is left to accumulate? $1,000 x 2.191 = $2,191; $1,000 principal + $1,191 in interest They will accumulate $1,191 in interest b) How much interest will the saver earn if the interest is withdrawn each year? They would earn $40; $1,000 x 1.04 per year 20 years x $40 = $800 c) Why are the answers to a and b different? because in part a the interest principal amount increases yearly , it is like interest deposit. In part b interest principal is always 1000.... View Full Document

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