Question

Trent is 25 years old and works for a company that matches his 401(k) contribution up to 5%. The interest rate for his 401(k) is 7.3%. If he puts away 10% of his $32,000 salary every year, what would the total of his 401(k) be in 10 years? Round your answer to the nearest cent.
a.
$67,266.16
b.
$72,176.59
c.
$33,250.60
d.
$35,677.89

Answer 1

First find the total annual contribution:
- Trent contributes 10% of $32,000 = $3,200.
- Employer matches 5% = $1,600.
- Total yearly contribution PMT = $4,800.

Future value of an ordinary annuity:
FV = PMT * [((1 + r)^n − 1) / r] with r = 0.073, n = 10.

Compute:
(1.073)^10 ≈ 2.023004805
FV ≈ 4800 * (2.023004805 − 1) / 0.073
FV ≈ 4800 * 1.023004805 / 0.073
FV ≈ $67,266.16

Answer: a. $67,266.16