Question

Joannie is in the 35% tax bracket. She works for a company that matches 50% of employees' contributions to their 401(k)

retirement accounts. Joannie decides to add $2,000 to her account, which she expects to earn an average of 4% annually until


she retires in twenty years.


What is Joannie's return on the investment immediately upon making the deposit?


return on investment:

Answer 1

85%

Explanation:

The calculation of return on investment is shown below:-

For calculating the return on investment first we need to find out the immediate return which is shown below:-

Immediate return = Tax savings + Employer matching contribution

= ($2,000 × 35%) + ($2,000 × 50%)

= $700 + $1,000

= $1,700

Now, we will compute the return on investment

Return on investment = Immediate return ÷ Amount invested by Joannie

= $1,700 ÷ $2,000

= 0.85

or

= 85%

So, for computing the return on investment we simply divide the immediate return by amount invested by Joannie.