Question

Alex is 43 years old and earns $70,000 as a financial analyst. He participates in his company-sponsored 401(k) plan. The most that Alex himself can defer/contribute from his annual compensation to the 401(k) plan is (2022 tax year).

Answer 1

Alexx invests $5,000 at a 5% annual return, while Spenser also invests $5,000 but has a net annual return of 4.75% after a 0.25% fee. After 30 years of compound interest, we compare the final amounts to determine the difference in their investments' worth.

Step-by-step explanation:

When considering how much more money Alexx will have than Spenser after investing $5,000 each at different interest rates due to administrative fees in a retirement fund, we need to use the compound interest formula. Alexx earns 5% directly, while Spenser earns a net of 4.75% after the 0.25% fee. Over 30 years, the difference in their investments' worth can be calculated by the formulas:

Alexx's Investment: $5,000(1 + 0.05)30

Spenser's Investment: $5,000(1 + 0.0475)30

Let's calculate the future value for both:

1. For Alexx: $5,000(1 + 0.05)30 = 5,000*(1.05)30
2. For Spenser: $5,000(1 + 0.0475)30 = 5,000*(1.0475)30

Now, we find the difference between the two final amounts to determine how much more Alexx will have compared to Spenser.