In: Finance
Your company sponsors a 401(k) plan into which you deposit 12
percent of your $65,000 annual income. Your company matches 50
percent of the first 5 percent of your earnings. You expect the
fund to yield 8 percent next year. Assume you are currently in the
31 percent tax bracket.
a. What is the total annual investment in the
401(k) plan at year-end? (Round your answer to the nearest
whole number. (e.g., 32))
b. What is your one-year return
Solution:-
To Calculate Total Annual Investment in the 401(k) plan at year end-
Employee's Contribution = $65,000 * 0.12 = $7,800
Tax Savings = $7,800 * 0.31 = $2,418
Employee Match = $65,000 * 0.50 * 0.05 = $1,625
Employee's Cost = Employee Contribution - Tax Savings
Employee's Cost = $7,800 - $2,418
Employee's Cost = $5,382
Total Investment at year start = Employee's Contribution + Employee Match
Total Investment at year start = $7,800 + $1,625
Total Investment at year start = $9,425
One Year earnings = $9,425 * 0.08
One Year earnings = $754
Total Investment at year end = Total Investment at year start + One Year earnings
Total Investment at year end = $9,425 + $754
Total Investment at year end = $10,179
To Calculate One year Return-
Return =
Return =
Return = 89.13%
If you have any query related to question then feel free to ask me in a comment.Thanks.