Today is July 1, 2024. Four years ago, when you started your first job after graduating from Ohio State in 2020, you began saving a portion of your salary in your company's 401k savings plan. Your salary is $65,000 annually, of which you decide to put 12% in the savings plan at the end of each year. In reality, a portion is saved from each paycheck, but we will use annual deposits for simplicity. Assume the savings plan earns 8% interest annually Your company provides matching contributions to the savings plan on the first 6% of compensation that you contribute to the savings plan. For example, if you contribute 2% of your salary, your company will match that and deposit an amount equal to 2% of your salary, too. A total of 4% of your salary is deposited into the savings plan. Another exomple if you contribute 30% o your solary, your company will only match the first 6% contributed ond deposit on omount equal to 6% o your salary. A total of 36% of your salary is deposited into the savings plan. a) What is the amount of each deposit "A" (A = your contribution+your employer's) on July l in 2021, 2022, 2023, and 202a(today)? b) What Is the total amount of money that is In your savlngs plan account today? c) Calculate the total amount of cash, excluding interest, that was actually taken out of your paycheck over the course of 4 years. Consider the following three scenarios (in parts d, e, and f) independently of eachother: d) Scenario 1: For some reason, you stop contributing to your company's savings plan after the 4 deposits above, so the current amount in your savings plan (part b) earns interest without any addition contributions. What amount would be in your savings account in 2030 (6 years from today)? e) Scenario 2: Let's say, you and your company contribute the same amount (part a) every year for the next 6 years until July 1, 2030 (10 deposits total. Now, how much would be in your savings account In 2030? f) Scenario 3: Alternatively, your co-worker decides not to contribute to the 401k savings plan when starting in 2020. However, they start saving today (July 1, 2024) and make deposits every year unti (July 1, 2030). How much would be in their savings plan account in 2030? (cash flow diagram below) g) Scenario 4: Last scenario, your friend does not have a company matching plan. They decide not to contribute to a 401k savings plan at all. They instead keep 10% of their salary (assume it is the sam in their bank account which earns 1% annually. Today, they move their money into a mutual fund which earns the average return for US diversified stock portfolios(assume 9.5%) and make future deposits (2025 to 2030) to this fund. How much do they have saved in 2030? (cash flow diagram below)
