Question

PLEASE I NEED HELP WITHIN NEXT 10 mins i need answer

: 1 fe . Your goal is to have a $1,000,000 balance after 40 years. x 10 You join a 401k plan. Here are your data: Starting salary Annual raise Your contribution Employer match 43,700.00 None 4.4% Your goal is to hlive a $1,000,000 balance after 40 years Using a monthly calculation, what annual rate of return will carry you to your goal? - periscope SWAG Growth Your Contrib Match Contr MonthBegin Bal 10 12

Answer 1

Employee monthly contribution = 4.4% of 43700 * 1/12 = $ 160.23

Employer monthly matching contribution = 4.0% of 43700 * 1/12 = $ 145.67

Let's assume the growth rate is x% per year, which translates to x/12 % per month if we compound monthly as required in the question.

Now, using the RATE() function in Excel with

No. of payments = 480 (as the payment is done every month), Payment = -(160.23+145.67) = -305.9$ (-ve as this is payment), and PV (Present Value) = 0, Future Value (FV) = 1,000,000,

we get the interest rate per month as 1.189%

=> Growth rate per annum = 1.189¹² ~ 8% (since we are compounding monthly, yearly growth rate is calculated this way)

Hence, we need a growth rate about 8% per annum for the balance to reach 1,000,000 $ after 40 years.