Question

Heidi contributes 11% of her monthly salary towards her 401(k) and her employer matches her contribution up to 6% of her salary. If the interest rate of her 401(k) is 6.25% compounded monthly and her monthly salary is $3,250, determine the amount in her account after 15 years. Round to the nearest cent.

Answer 1

The amount that will be in Heidi’s account after 15 years is option A. $164,146.52.What is Future Value?It can be calculated using the formula for calculating the Future Value (FV) of an Ordinary Annuity as follows:FV = M (((1 + r)^n - 1) / r)Where;FV = Future value of the amount need to findM = total monthly contribution which is Heidi’s monthly contribution of 11% of her monthly salary + Employer monthly contribution of 6% of Heidi’s monthly salary can be calculated as;= (11% of Heidi’s monthly salary + 6.25% of Heidi’s monthly salary) = (11% of $3,250) + (6.25% x $3,250) = $552.50r = Monthly interest rate= Annual interest rate of 401(k) / 12 = 6.25% / 12 = 0.0625 / 12 r = 0.00520833333333333n = number of months = Number of years x 12 = 15 x 12 n= 180Substituting all the values into equation (1), we have;FV = $552.50 (((1 + 0.00520833333333333)^180 - 1) / 0.00520833333333333)FV = $552.50 x 297.097770863934FV = $164,146.518402324Rounding to the nearest cent, we get;FV = $164,146.52Therefore, the amount that will be in Heidi’s account after 15 years is option A. $164,146.52.

Explanation:

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