You can invest $3,000 at the end of each of the next 20 years into a retirement account paying 10% annual interest.Alternatively,you can enter into a retirement plan with your employer where,for every yearly (end-of-year)payment of $3,000 you make,the firm will contribute $1,500.Your employer's plan will also last for the next 20 years.The firm guarantees a return of 7% on its retirement plan.Which option is better?
A) Invest with your employer
B) Indifferent
C) Invest on your own

Question

Quizplus · Accepted Answer

FV = PMT × 11ea7fdb_fc15_be29_a768_9177d7e3e05d_TB2902_11 11ea7fdb_fc15_be2a_a768_8b8ad3b5074f_TB2902_11 = 3,000 × 11ea7fdb_fc15_be2b_a768_9127474f865c_TB2902_11 = $171,825
Using a financial calculator:
N = 20, I/Y = 10, PV = 0, PMT = -3,000, cpt FV = $171,825 11ea7fdb_fc15_be2c_a768_0b1bb565e857_TB2902_11 = 4,500 × 11ea7fdb_fc15_be2d_a768_8f4ac1a0ce47_TB2902_11 = $184,479.72
Using a financial calculator:
N = 20, I/Y = 7, PV = 0, PMT = -4,500, cpt FV = $184,479.72

You Can Invest $3,000 at the End of Each of the Next