Question
An employee contributes $16,900 to a 401(k) plan each year, and the company matches 10 percent of this annually, or $1,690. The employee can allocate
An employee contributes $16,900 to a 401(k) plan each year, and the company matches 10 percent of this annually, or $1,690. The employee can allocate the contributions among equities (earning 14 percent annually), bonds (earning 7 percent annually), and money market securities (earning 5 percent annually). The employee expects to work at the company 15 years. The employee can contribute annually along one of the three following patterns:
Option 1 | Option 2 | Option 3 | ||||||||||
Equities | 70 | % | 60 | % | 50 | % | ||||||
Bonds | 30 | 35 | 40 | |||||||||
Money market securities | 0 | 5 | 10 | |||||||||
100 | % | 100 | % | 100 | % | |||||||
Calculate the terminal value of the 401(k) plan for each of the 3 options, assuming all returns and contributions remain constant over the 15 years. (Do not round intermediate calculations. Round your answers to the nearest whole number. (e.g., 32))
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