Question

Case Study 2: Maxing out Matched Savings

Chen's employer will match 50% of their $250 monthly contributions to their 401(k). This
means that Chen's employer will put 50% of $250 = $125 into Chen's 401(k) account each
month in addition to Chen's $250. Free money-- Nice! (this is common!)
How much will Chen have after 40 years of saving $250 their own money if the account
compounds monthly at 3% APR?
hint: Use the TVM Solver on the Tl or this website. Remember, ignore the - sign. Don't forget
about the matching!
Type answer as a number without the $ symbol rounded to the hundredths. Example, if it
the answer was $1234.5687, you would enter 1234.57.

Answer 1

The computation of the given question is shown below:-

Total Contributions = Monthly contribution + Amount invested in Ferdinand’s 401(k)

= $250 + $125

= $375

1. Future Value = PMT [((1 + r)n - 1) ÷ r

Future value = 375 × ((1 + 0.03 ÷ 12) × 12 × 40 - 1) ÷ (0.03 ÷ 12)

= $347,272

2. Ferdinand deposit = Given Amount × Total number of months in a year × Number of years

= $250 × 12 Months × 40 Years

= $120,000

3. The Amount put in by the employer = 50% of $250 ×Total number of months in a year × Number of years

= $125 × 12 Months × 40 Years

= $60,000

4. Interest = Future value - Ferdinand deposit - The Amount put in by the employer

= $347,272 - $120,000 - $60,000

= $167,272

Explanation: