Essay
Consider a 25-year-old worker who saves $1000 for retirement. She plans to retire at the age of 70. The interest rate is 10 percent. To stimulate savings in retirement plans, suppose the interest income is not taxed until it is realized (the money is effectively withdrawn from the account.) To simplify, suppose that, when she is 70, our worker withdraws the entire amount in her account. How much will she receive if the tax on interest is 40 percent?
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