Two friends, Kyle and Wes, graduated college and started workingon their career at the same time. Both friends were 25 at thetime.
As soon as Kyle was eligible for the 401K benefit he starteddepositing $100 per month for the next ten years.
Wes decided he so enjoyed having a real income that he wanted tospend it on fast cars, awesome threads, the most recent smart phoneand video game system, and clubbing every weekend. Wes chose not toinvest in his 401K for a while.
After ten years, Kyle decided to buy ahouse and couldn't afford to invest in his 401K anymore, so hestopped with his $100 per month deposit, but never touched hisbalance.
After ten years, Wes's party days were slowing down, he nolonger needed the fancy clothes, and didn't need the newest gadgetsas much, so he started investing $100 per month in his 401K for thenext twenty years.
Both friends averaged 8% over the life of their investment in amixed mutual fund.
At age 55, the friends decided to see where they stood forretirement savings. Calculate the following:
1. What is Wes' total investment after investing $100 per monthfor 20 years?
2. Who has the higher balance?
3. What does this tell us about the time value of money?
