Question

Between the two investment plans listed below, which will have the greatest future value and by what amount? Round all answers to the nearest cent. A 2-column table with 3 rows. Column 1 is labeled 401 (k) with entries An employee contribution of 9 percent on an annual salary of 45,624 dollars and Employer matches 3 percent of employee contribution, compounded annually at 1. 2 percent, annual contributions for 30 years. Column 2 is labeled Roth I R A with entries monthly deposit of 352 dollars and 45 cents, compounded monthly at 1. 2 percent, monthly contributions for 30 years.

Answer 1

Explanation:

To determine the future value for the 401(k), we need to determine the amount contributed annually. It is stated that the amount the employee contributes to the fund is 9% of $45,624. $45,624(0.09) = $4,106.16 The employer contributes a maximum of 3% of the employee contribution. Therefore: $45,624(0.03) = $1368.72. Therefore, the total annual contribution is $5,474.88, giving a future value of $196,302.40. For the Roth IRA, the monthly contributions are $352.45 giving a future value of $152,636.09. Therefore, the 401(k) has a greater future value by $43,666.31.