3) John makes $2,800 per month and has an opportunity to invest $150 per month a

Question

3) John makes $2,800 per month and has an opportunity to invest $150 per month at an APR of 4.5% in a 401K plan through work. He plans to retire in 30 years. If income taxes are at 20% for him:

a. Use Excel to determine how much his investment be worth in 30 years.

Write the Excel formula that gives its future value _______________________________________________________

Write the future value the formula gives: _____________________

b. How much money will he deposit into the 401K over the 30 years?

c. How much total interest will he earn on his 401K over the 30 years?

d. How much will his monthly take-home pay decrease? Remember 401k investments are not taxed.

e. How much tax savings is there over the 30 years?

Explanation / Answer

Solution :

Write the Excel formula that gives its future value :

Recall the Excel future value funcTon, “=FV(monthly interest rate, number of payments, deposit amount)”

Write the Excel formula that gives its future value =FV(.045/12,360,150)

Write the future value the formula gives $70861.88

How much would the company contribute to John’s 401K over the 30 years? $27,000

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