Two friends, Kyle and Wes, graduated college and started working on their career at the same...

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Finance

Two friends, Kyle and Wes, graduated college and started workingon their career at the same time. Both friends were 25 at the time.As soon as Kyle was eligible for the 401K benefit he starteddepositing $100 per month for the next ten years. Wes decided he soenjoyed having a real income that he wanted to spend it on fastcars, awesome threads, the most recent smart phone and video gamesystem, and clubbing every weekend. Wes chose not to invest in his401K for a while. After ten years, Kyle decided to buy a house andcouldn't afford to invest in his 401K anymore, so he stopped withhis $100 per month deposit, but never touched his balance. Afterten years, Wes's party days were slowing down, he no longer neededthe fancy clothes, and didn't need the newest gadgets as much, sohe started investing $100 per month in his 401K for the next twentyyears. Both friends averaged 8% over the life of their investmentin a mixed mutual fund. At age 55, the friends decided to see wherethey stood for retirement savings.
Calculate the following:
1. How much did each friend invest in their 401K (no interest,just $100 X number of months invested).
2. How much will Kyle have after 10 years of investing$100/month at 8%?
3. Since Kyle is going to leave his balance after ten yearsremain in the account and accumulate interest, what will be hisbalance after 20 more years. HINT: Lump sum using balance after tenyears for a twenty year term.
4. How much did Kyle’s investment grow in those twenty yearswith no additional investment?
5. What is Wes' total investment after investing $100 per monthfor 20 years?
6. Who has the higher balance?
7. What does this tell us about the time value of money?

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1 Kyle total Investment 10010 years 12 Months 12000 Wes total Investment 10020 Years 12 Months 24000 2 After ten year Kyle have 1841657 here is the Calculation Month Before Interest Interest Total 1 10000 067 10067 2 20067 134 20200 3 30200 201 30402 4 40402 269 40671 5 50671 338 51009 6 61009 407 61416 7 71416 476 71892 8 81892 546 82438 9 92438 616 93054 10 103054 687 103741 11 113741 758 114499 12 124499 830 125329 13 135329 902 136231 14 146231 975 147206 15 157206 1048 158254 16 168254 1122 169376 17 179376 1196 180572 18 190572 1270 191842 19 201842 1346 203188 20 213188 1421 214609 21 224609 1497 226107 22 236107 1574 237681 23 247681 1651 249332 24 259332 1729 261061 25 271061 1807 272868 26 282868 1886 284754 27 294754 1965 296719 28 306719 2045 308763 29 318763 2125 320889 30 330889 2206 333094 31 343094 2287 345382 32 355382 2369 357751 33 367751 2452 370203 34 380203 2535 382737 35 392737 2618 395356 36 405356 2702 408058 37 418058 2787 420845 38 430845 2872 433717 39 443717 2958 446675 40 456675 3045 459720 41 469720 3131 472851 42 482851 3219 486070 43 496070 3307 499378 44 509378 3396 512773 45 522773 3485 526259 46 536259 3575 539834 47 549834 3666 553499 48 563499 3757 567256 49 577256 3848 581104 50 591104 3941 595045 51 605045 4034 609079 52 619079 4127 623206 53 633206 4221 637427 54 647427 4316 651743 55 661743 4412 666155 56 676155 4508 680663 57 690663 4604 695267 58 705267 4702 709969 59 719969 4800 724769 60 734769 4898 739667 61 749667 4998 754665 62 See Answer

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Transcribed Image Text

Two friends, Kyle and Wes, graduated college and started workingon their career at the same time. Both friends were 25 at the time.As soon as Kyle was eligible for the 401K benefit he starteddepositing $100 per month for the next ten years. Wes decided he soenjoyed having a real income that he wanted to spend it on fastcars, awesome threads, the most recent smart phone and video gamesystem, and clubbing every weekend. Wes chose not to invest in his401K for a while. After ten years, Kyle decided to buy a house andcouldn't afford to invest in his 401K anymore, so he stopped withhis $100 per month deposit, but never touched his balance. Afterten years, Wes's party days were slowing down, he no longer neededthe fancy clothes, and didn't need the newest gadgets as much, sohe started investing $100 per month in his 401K for the next twentyyears. Both friends averaged 8% over the life of their investmentin a mixed mutual fund. At age 55, the friends decided to see wherethey stood for retirement savings.Calculate the following:1. How much did each friend invest in their 401K (no interest,just $100 X number of months invested).2. How much will Kyle have after 10 years of investing$100/month at 8%?3. Since Kyle is going to leave his balance after ten yearsremain in the account and accumulate interest, what will be hisbalance after 20 more years. HINT: Lump sum using balance after tenyears for a twenty year term.4. How much did Kyle’s investment grow in those twenty yearswith no additional investment?5. What is Wes' total investment after investing $100 per monthfor 20 years?6. Who has the higher balance?7. What does this tell us about the time value of money?