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

Question

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 ($11,000*last digit of your 8-digit UMID + $100,000), 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. 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 ($11,000*last digit of your 8-digit UMID + $100,000), 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.

Explanation / Answer

Monthly contribution By employee:

123.60

Inrerest earned by employee

Deposit @12% 123.60 123.60 123.60 123.60 123.60 123.60 123.60 123.60 123.60 123.60 123.60

123.60

Conribution by employor 51.5 51.5 51.5 51.5 51.5 51.5 51.5 51.5 51.5 51.5 51.5 51.5

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