Question

Consider the accompanying sample data on expense ratio (%) for large-cap growth mutual funds.

A) 0.75, 1.20, 1.50, 2.00
B) 2.50, 3.00, 3.50, 4.00
C) 4.25, 4.50, 4.75, 5.00
D) 5.25, 5.50, 5.75, 6.00

Answer 1

The question is about comparing the accumulation of two investments over 30 years with different interest rates and administrative fees.

Step-by-step explanation:

The question is about comparing the accumulation of two investments over 30 years. One investment is made directly with a 5% annual return, while the other is made in a retirement fund with a 4.75% annual return. The retirement fund charges an administrative fee of 0.25% on managed assets each year.

To find out how much more Alexx will have than Spenser after 30 years, we can calculate the future value of both investments and compare the difference.

Using the formula for compound interest, the future value of Alexx's investment can be calculated as $5,000 * (1 + 0.05)^(30) = $14,697.79. The future value of Spenser's investment can be calculated as $5,000 * (1 + 0.0475 - 0.0025)^(30) = $12,729.59. Therefore, Alexx will have $1,968.20 more than Spenser after 30 years.