A JOB AT EAST COAST YACHTS, PART 1 You rocently graduated from colloge, and your job search lod you to East Coast Yachts. Bocause you felt the companys business was seaworthy you acceptod it job oflar The first day on the job, while you are finishing your employment paperwork. Dan Ervin, who works in financo, stops by to inform you about the cornpany's 40+(k) plan. A 401(K) plan is a retirement plan ottered by many oorpanies. Such plans are tax-delerred staings vehicles, meaning that any deporits you make into the plan aro deducted from your current pretax income, so no current taxes are paid on the money. For example, assume your salary will be $50,000 per year- If you contribtito $5,000 to the 401(k) plan, you will only pay taxes on $47,000 in income. There are also no taxes paid on any capltal gains or income while you are invested in the plan, but you do pay takes when you withdraw money at retirement. As is taily common, the company also has a 5 percent match. This means that the company will maich your coritribution up to 5 percent of your salary, but you must contribute to get the match. The 401(0) plan has several cptions for imvestments, most of which are mutual funds. A mutual fund is a portfolio of assots, When you purchase shares in a mutual furnd, you ate actually purchasing partial ownership of the fund's assets. The roturn of the fund is the weighted average of the return of the assets ownod by the fund, mincis any oxpenses. Tho largest expense is typically the management fee, paid to the fund manager. The managoment fee is compensation for the manager, who makes al of the invesiment decisions for the fund. East Coast Yachts uses Blodsoo Financial Services as its 401(k) plan administrator. The irvestment options offered for employoes are discussad tielow. Cempany Stock. One option in the 401(k) plan is stock in East Coast Yachts. The company is currontly privately held. However, when you intarviewed with the ownor, Larissa Warren, the informed you the company stock was expected to go public in the next three to four yoars. Until then, a company atock, price is sot oach yoar by the board of directort. Biedsoe S8P 500 index Fund This mutual fund tracks the S8P 500. Stocks in the fund are weighted exactly the same as the S8P 500, This means the fund retum in pproximately the return on the SBP 500 , minus expenses. Because an index fund purchases assets based on the composition of the indexit is following. the find inarager is 16 percent of assets per year. Bledeoe 8 mall-Cap Fund. This fund primarily imvests in smas-captalization stocks. As such, the retums of the fund are more voiatile. The fund can also irivest 10 fercent of its assets in companies based cutside the United States. This Hind charges 1.70 percont in expenses. Budsoe and has ouperformed the market in tike ol the last eight yearo. The fund charges 1.80 percont in expenses. Btedsoe Bond Fund This fund invests in long-term corporate bonds issued by U.S.domicled companies The fund is restricted to investimponts in bonds with an mestment-grade cridit rating. This fund charges 1.40 percont in expensos. Blodsoe Money Market Fund. This fund invests in short-term, high-credit-quality debt instruments, which include Treasury bills. As such, the ratum on the monoy mariket retum. The fund charges .60 percent in expenses. 1. What advantages do the mutuai funds ofler compared to the company stock? 2. Assume that you invest 5 percent of your salary and receive the full 5 percent match from East Coast Yachis. What EAR do you oarn from the match? What conclusions do you drew about matching plans