Question
3) After graduating from IU, you are hired by a company that offers a 401(k) retirement plan. You would like to save enough in this
3) After graduating from IU, you are hired by a company that offers a 401(k) retirement plan. You would like to save enough in this plan so that when you retire in 35 years you have an account balance of $1 million. You plan to make monthly contributions, and expect an annual return of 4%, compounded monthly. How much should you contribute each month to reach your goal?
4) The company you work for is trying to decide between two projects. Project 1 costs $200,000 up front, and has an expected life of 5 years, over which it will return $40,000 each of the five years. Project 2 would last for 15 years, costs $1 million up front, and returns $100,000 at the end of each of the 15 years. Assuming a real discount rate of 3.3%, which project has the higher equivalent annual net benefit?
5) You are offered $5000 (in nominal dollars) 3 years from now in exchange for a loan of $3500 today. You expect inflation to run 3.7% per year, and your real hurdle rate is 6%. Should you make the loan?
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