Oakbrook Landscapes has a 401-k retirement plan in which the company matches the amount the employee puts into retirement savings up to $200 monthly (so if Jason puts $200 in his savings plan, his employer will put an equal amount into it as well). Jason and Michelle decide to have the $200 withdrawn from their monthly payroll to get the full machine count.
a) If they continue to deposit $200 each month (matched by an additional $200 from Oakbrook) for the next 45 years, and they average 6% annual rate of return compounded monthly, how much will their 401-k potentially be worth in 45 years?
b) How much of this 401-k final amount would be interest and how much would be principal?
c) What would be the buying power of this 401-k final amount be if we assumed 3% inflation rate over 45 years?
a) If they continue to deposit $200 each month (matched by an additional $200 from Oakbrook) for the next 45 years, and they average 6% annual rate of return compounded monthly, how much will their 401-k potentially be worth in 45 years?
b) How much of this 401-k final amount would be interest and how much would be principal?
c) What would be the buying power of this 401-k final amount be if we assumed 3% inflation rate over 45 years?
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So, do Jason and Michelle have separate accounts? Are they each putting in 200 bucks per month? Is it 200 each into 2 accounts, 400 into 1 account, 200 into 1 account?
Let's just say that they put x into an account per month
(x + 200) * (1 + 0.06/12)^(45 * 12) + (x + 200) * (1 + 0.06/12)^(45 * 12 - 1) + (x + 200) * (1 + 0.06/12)^(45 * 12 - 2) + .... + (x + 200) * (1 + 0.06/12)^(45 * 12 - 45 * 12 + 1)
45 * 12 = 540
1 + 0.06/12 = 12.06/12 = 1.005
x + 200 = k
k * 1.005^540 + k * 1.005^539 + .... + k * 1.005^1 =>
k * (1.005^1 + ... + 1.005^539 + 1.005^540)
Remember what I taught you about geometric series
S = a * r * (r^p - 1) / (r - 1)
r = 1.005
p = 540
a = 1
S = 1 * 1.005 * (1.005^540 - 1) / (1.005 - 1)
S = 1.005 * (1.005^540 - 1) / 0.005
S = 1005 * (1.005^540 - 1) / 5
S = 201 * (1.005^540 - 1)
k * S =
k * 201 * (1.005^540 - 1) =
(x + 200) * 201 * (1.005^540 - 1)
So, depending on the wording of the question, x could be 200 in 1 account, 2 accounts with 200 in each account, 1 account with 400
1 account
x = 200
Let's just say that they put x into an account per month
(x + 200) * (1 + 0.06/12)^(45 * 12) + (x + 200) * (1 + 0.06/12)^(45 * 12 - 1) + (x + 200) * (1 + 0.06/12)^(45 * 12 - 2) + .... + (x + 200) * (1 + 0.06/12)^(45 * 12 - 45 * 12 + 1)
45 * 12 = 540
1 + 0.06/12 = 12.06/12 = 1.005
x + 200 = k
k * 1.005^540 + k * 1.005^539 + .... + k * 1.005^1 =>
k * (1.005^1 + ... + 1.005^539 + 1.005^540)
Remember what I taught you about geometric series
S = a * r * (r^p - 1) / (r - 1)
r = 1.005
p = 540
a = 1
S = 1 * 1.005 * (1.005^540 - 1) / (1.005 - 1)
S = 1.005 * (1.005^540 - 1) / 0.005
S = 1005 * (1.005^540 - 1) / 5
S = 201 * (1.005^540 - 1)
k * S =
k * 201 * (1.005^540 - 1) =
(x + 200) * 201 * (1.005^540 - 1)
So, depending on the wording of the question, x could be 200 in 1 account, 2 accounts with 200 in each account, 1 account with 400
1 account
x = 200
12
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