Question

1. Your employer provides a 401(k) retirement plan and matches 100% of your contributions up to 5%. Your annual income is $54,000 and you expect to earn an annualized 8.0% return on your investment. What is the value of your 401(k) if you contribute 5% of your annual income after 30 years? What is the value if the return on investment is at a 10.0% annualized rate? How much of a difference would it be if you stopped making contributions five years earlier? [Note: you must use the tables found in Week 2 and show your factors. Use of an online calculator is not approved for this problem.]

Answer 1

Annual Income = $54000

401(k)Contribution =5% of 54000 = $2700 every year

Expected Annualised Return = 8%
Value after 30years FVA =

Future Value of Annual Invt = = $305,864

If expected Rate of return is 10%

Future Value of Annual Invt = = $444,133.861

If he stopped contributions 5 years earlier(his expected rate os still 10%)

Future Value of Annual Invt after 25years = = $265537.0605

FV of Amount after next 5 years assuming the amount saved yield 10% =

FV of Amount after next 5 years assuming the amount saved yield 10% = = $427650.093

Difference = 444,133.861-427650.093 = $16,483.77