Chapter 9A, Problem 10P

a)

To determine

The value of the account of new employee after 10 years.

Answer to Problem 10P

The value of the account after 10 years will be $64913.

Explanation of Solution

He puts 4% percent of his salary into her new account and her employer will put 3% of her salary to her retirement account, so her account can be accounted as:

Year	Salary(increasing 2.5% every year)	Employee commitment	Employer commitment	Total contribution of employee and employer
0	65000	2600	2600	5200
1	66625	2665	2665	5330
2	68291	2732	2732	5463
3	69998	2800	2800	5600
4	71748	2870	2870	5740
5	73542	2942	2942	5883
6	75380	3015	3015	6030
7	77265	3091	3091	6181
8	79196	3168	3168	6336
9	81176	3247	3247	6494
10	83205	3328	3328	6656
Total				64913

The value of the account after 10 years will be $64913.

Economics Concept Introduction

Introduction: Retirement account is an investing tool that an individual uses to save his earnings for retirement. Some percentage of the annual earning of the employee is deposited into retirement account while same amount is also deposited by employer in the retirement account. As the salary increase annually due to increment the amount of deposit by both employer and employee also increase likewise.

b)

To determine

The value of employer’s matching fund.

Answer to Problem 10P

The value of employer’s matching fund will be $32458

Explanation of Solution

Year	Salary(increasing 2.5% every year)	Employer commitment
0	65000	2600
1	66625	2665
2	68291	2732
3	69998	2800
4	71748	2870
5	73542	2942
6	75380	3015
7	77265	3091
8	79196	3168
9	81176	3247
10	83205	3328
Total		32458

The value of employer’s matching fund will be $32458

Economics Concept Introduction

Introduction: Retirement account is an investing tool that an individual uses to save his earnings for retirement. Some percentage of the annual earning of the employee is deposited into retirement account while same amount is also deposited by employer in the retirement account. As the salary increase annually due to increment the amount of deposit by both employer and employee also increase likewise.

c)

To determine

The value of the account of new employee after 40 years.

Answer to Problem 10P

The value of the account after 40 years will be $364444

Explanation of Solution

Year	Salary(increasing 2.5% every year)	Employee commitment (4% of salary)	Employer commitment (4% of salary)	Total contribution of employee and employer
0	65000	2600	2600	5200
1	66625	2665	2665	5330
2	68291	2732	2732	5463
3	69998	2800	2800	5600
4	71748	2870	2870	5740
5	73542	2942	2942	5883
6	75380	3015	3015	6030
7	77265	3091	3091	6181
8	79196	3168	3168	6336
9	81176	3247	3247	6494
10	83205	3328	3328	6656
11	85285	3411	3411	6822
12	84717	3497	3497	6993
13	89603	3584	3584	7168
14	91843	3673	3673	7347
15	94139	3765	3765	7531
16	96492	3860	3860	7719
17	98905	3956	3956	7912
18	101377	4055	4055	8110
19	103912	4156	4156	8312
20	106510	4260	4260	8520
21	109172	4367	4367	8733
22	111902	4476	4476	8952
23	114699	4587	4587	9174
24	117567	4703	4703	9406
25	120506	4820	4820	9640
26	123519	4941	4941	9882
27	126607	5064	5064	10128
28	129772	5191	5191	10382
29	133016	5321	5321	10641
30	136341	5453	5453	10907
31	139750	5590	5590	11180
32	143244	5730	5730	11460
33	146825	5873	5873	11746
34	150495	6020	6020	12040
35	154258	6170	6170	12340
36	158114	6325	6325	12649
37	162067	6482	6482	12965
38	166119	6645	6645	13290
39	170272	6810	6810	13620
40	174529	6981	6981	13962
Total				364444

The value of the account after 40 years will be $364444

Economics Concept Introduction

Introduction: Retirement account is an investing tool that an individual uses to save his earnings for retirement. Some percentage of the annual earning of the employee is deposited into retirement account while same amount is also deposited by employer in the retirement account. As the salary increase annually due to increment the amount of deposit by both employer and employee also increase likewise.