amir works at a company with a defined - contribution plan which contributes an amount equal to 7 percent of…

amir works at a company with a defined - contribution plan which contributes an amount equal to 7 percent of his salary to his account while he contributes nothing. the vesting period is 5 years. he has worked there full - time for 2 years at an average pay of $30,000 and the account manager has earned 7 percent per year on the pension amount. if he leaves now to take a better job, how much will remain in his pension account?\na. 40% of the amount in his account.\nb. $4,200 which is equal to $30,000 times 7 percent times 2 years.\nc. more than $4,200 because it has earned interest as well.\nd. nothing because he has not worked long enough.

amir works at a company with a defined - contribution plan which contributes an amount equal to 7 percent of his salary to his account while he contributes nothing. the vesting period is 5 years. he has worked there full - time for 2 years at an average pay of $30,000 and the account manager has earned 7 percent per year on the pension amount. if he leaves now to take a better job, how much will remain in his pension account?\na. 40% of the amount in his account.\nb. $4,200 which is equal to $30,000 times 7 percent times 2 years.\nc. more than $4,200 because it has earned interest as well.\nd. nothing because he has not worked long enough.

Answer

Explanation:

Step1: Calculate annual contribution

The company contributes 7% of his $30,000 salary annually. So the annual contribution is $30000\times 0.07 = 2100$.

Step2: Calculate total contribution without interest

In 2 years, the total contribution without considering interest is $2100\times2=4200$.

Step3: Consider the interest

The account manager has earned 7% per - year on the pension amount. Since there is interest earned on the contributions made in the first year for the second - year period and on the contributions made in both years, the amount in the account will be more than the simple sum of contributions without interest ($4200$).

Answer:

C. More than $4,200 because it has earned interest as well.