Problem:
A person places $5,000 in a certificate of deposit that matures in 20 years and pays annual interest rate of 3%. What will be the value at maturity if the interest is reinvested in the deposit?
Required:
Question 1: How much interest will accumulate after 20 years?
Question 2: How much would they receive annually if they chose not to reinvest the interest and what would be the total interest paid out over 20 years?
Question 3: Why are answers a and b different?
Please provide step by step solution and also show all work.