Homework Answers
A. Total Investment per year =$2400
Tax saved on Investment =$2400*0.25 = $600
So, Total reduction in Take home salary per year = $2400-$600 =$1800
Total reduction in take home salary per month = $1800/12 = $150
Monthly net pay after taxes will be reduced by $150
B. As the employer matches the 1st $2400 per year , the total amount invested in the 401(k) account per year will be $2400 (employee contribution) + $2400 (employer contribution) =$4800
C. As an amount of $4800 is invested per year, earning 9% per year for 20 years ,the balance in the account will be equal to the future value of the annuity of $4800
Balance after 20 years = 4800/0.09* (1.09^20-1) =$245,568.57
D.Balance after 30 years = 4800/0.09* (1.09^30-1) =$654,276.19
E. As the current age is 25, by the age of 65, there would be 40 years of investment
Balance after 40 years = 4800/0.09* (1.09^40-1) =$1,621,835.74
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