Question

Betty earns $100,000 working as a part time lawyer in New Orleans. The company provides a 1-to-1 matching contribution in the 401(k) plan up to a maximum contribution of 4% of compensation. Her 401(k) plan account had $50,000 in it at the beginning of the year. She contributed $15,500 to the plan this year and the employer made the matching contribution before year-end. The ending balance of the account is $87,000. What is her return on investments this year

Answer 1

Answer:

Betty's Return on investment = 56.41%

Explanation:

Maximum contribution by the company = 4% of 100,000 = 4000 USD.

Employer Contribution = 50% x 15,500.

                                      = 7,750

Total contributed amount in USD = Betty contribution + Company's contribution

                                                      = 15,500 + 4000

                                                      = 19500 USD.

Betty 401(k) plan account had 50,000 USD in it at the beginning means, it is the opening balance in the acount.

Opening amount = 50,000 USD

Amount Earned = 100,000 - 50,000 - 19500 .

                         = 30500 USD .

Betty's Return on investment = (Gain - cost)/cost

                                                 = (30500 - 19,500) / (19,500)

                                                 = 56.41%