Question

An employer will do a 50% match on your investment to a 401k retirement plan. If you decide to contribute a monthly amount of $220, how much should be in the account after 15 years? The interest rate is fixed at 2.05%.

Answer 1

The employee decides to contribute a monthly amount of $ 220 to a 401k retirement plan. Since the employer does a 50% match on the employee’s investment, hence the monthly contribution to the retirement plan is 2 $ 220 = $ 440.

The future value (F) of an annuity is given by F = (P/r)[(1+r)ⁿ-1], where P is the periodic payment , r is the rate per period and n is the number of periods.

Here, P = 440, r = 2.05/1200 and n = 15*12 = 180.

Hence, F = (440*1200/2.05)[ (1+2.05/1200)¹⁸⁰ -1] = (528000/2.05)*0.359664042 = $ 92635.42 ( on rounding off to the nearest cent).

Thus, there will be $ 92635.42 in the account after 15 years.