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Question: After 15 years of working for one employer, you transfer to a new job. During each of these years your employer contributed (that is, she diverted from your salary) $1500 to an account for your retirement (a fringe benefit), and you contributed a matching amount each year. The whole fund was invested at 5% during that time, and the value of the account now stands at $30,000. You are now faced with two alternatives.

(1) You may leave both contributions in the fund until retirement in 35 years, during which you will get the future value of this amount at 5% interest per year.

(2) You may take out the total value of "your" contributions, which is $15,000 (one-half of the total $30,000).

You can do as you wish with the money you take out, but the other half will be lost as far as you are concerned. In other words, you can give up $15,000 today for the sake of getting the other $15,000 now. Otherwise, you must wait 35 years to get the accumulated value of the entire fund. Which alternative is more attractive? Explain your choice.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92634768

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