Starting today, Stephen is going to contribute $200 on the first of each month to his retirement account. His employer will contribute an additional 50% of the amount Stephen contributes. If both Stephen and his employer continue to do this and he can earn a monthly rate of 0.75%, how much will Stephen have in his retirement account 40 years from now?

Question

Quizplus · Accepted Answer

Stephen contributes $200 each month, and his employer contributes an additional 50% of that amount, which is $100. Therefore, the total monthly contribution is $300. To find the future value of these contributions, we use the future value of an annuity formula: $FV = P \times \left(\frac{(1 + r)^n - 1}{r}\right)$, where $P$ is the payment amount per period, $r$ is the interest rate per period, and $n$ is the total number of payments. In this case, $P = $300$, $r = 0.0075$ (0.75% monthly interest rate), and $n = 40 \times 12 = 480$ (40 years of monthly contributions). Plugging these values into the formula gives us the future value of Stephen's retirement account. The correct answer is $1,414,929, which is option D.

Starting Today, Stephen Is Going to Contribute $200 on the First