Your 40-year clients, who have a 12-year old child, plan to retire at the age of...

Your 40-year clients, who have a 12-year old child, plan to retire at the age of 62. Assume 360-day year and 30-day month in your calculations.

They have a current salary at an annual rate of $144,000, being paid equally at the end of each month.

They expect a 3% raise in their salary every year until they retire.

They deposit 12% of their monthly salary to their 401(k) account that generates an annual rate of return of 10%, compounded daily.

In addition, their employer matches their contribution with 5% of their salary to the same 401(k) account.

Q1 Determine the cash flows pattern of the total monthly contributions to the 401(k)

account within each year; and calculate and explain precisely your choice of interest rate, i.e., EAR/EPR/PER,

used in your analysis. And calculate the year-end value of the 401(k) contributions for each year.

Q2 Determine the pattern of the year-end values of the 401(k) contributions across years;

and calculate and explain precisely your choice of interest rate, i.e., EAR/EPR/PER, used in your analysis. And calculate their 401(k) account balance upon their retirement.

Expert Solution

jeff jeffy answered 2 years ago

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Your 40-year clients, who have a 12-year old child, plan to retire at the age of...

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