Simple Interest

Question

Lucy contributed $5000 per year from her salary to a 401(k) plan and her employer matched it dollar for dollar. The interest rate is 7.5% compounded annually.

After 15 years of working for the firm, she moved on to a new job. However, she kept her accumulated retirement funds in the 401(k).

How much will she have in the plan when she turns 65 years?

For this purpose only (not for your work or your exam), please round to the nearest integer. Do not include the unit.

Answer 1

Sorry, Raven. Interest that's compounded annually isn't simple interest.

 

And you know what? I can't even solve the problem. Not unless I know how old Lucy was when she left the job.

 

See, the problem has two parts:

- the part where she's working, and she adds $10K of principal each year (and even for that, we have to make an assumption about when during the year it's added), while earning interest

- the part between when she left the job and age 65, where she is (probably) not adding principal, but is earning interest.

 

You're going to have to find that missing info before anyone can give you an answer. Sorry!