Financial Information
How do I calculate earned interest for each month for a 401k retirement plan?
Question : How do I calculate earned interest for each month for a 401k retirement plan?
This is for a project for my Economics class, and I’ve used as many resources as I can to find this… and I’m stuck.
The hypothetical situation below explains what I’m supposed to do:
After initially picking a 401k plan (upon research I chose a Bond Mutual Fund for this), I’m supposed to “keep track of my earned interest for my mutual fund” per month.
My monthly income is $ 2500 and I plan to contribute 8% of that to the 401k, which would be $ 200/month.
How do I figure out the earned interest per month? I have no idea what the interest rate is or how to find that. I’ve researched online and got 5.25%, in which I have no idea is correct.
Thanks in advance for any help you can provide.
401k retirement
Best answer:
Answer by Think4Yourself
You need the start date, end date and the future value of the investment at the time of maturity to get the answer. You don’t have enough information.
In the real world, btw, the interest rate or calculated return of the fund would be given to you in a prospectus.
I never drink….. wine.
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#2 written by wallstream 1 year ago
Are you more looking for a way to calculate how the money grows? Or how to get the interest rate in the first place? Sounds like a bit of both.
For the math, you might try the bottom calculator at this site:
http://home.ubalt.edu/ntsbarsh/zero/CompoundCalI.htm
with whatever values you come up with, for example:
“Present value” = 0
“Payment per period” = -200
“Annual interest rate” = .0525
“Periods per year” = 12
“Number of years” seems to allow fractions if you need partial years -
#3 written by Miss Know It All 1 year ago
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#4 written by justbeingher 1 year ago
Mutual fund investing interest rates are based on the risk factor of the fund – a bond fund has some risk. To make it easier to find a published interest rate maybe you should just pick a money market fund and be done with it. A 401K is not going to typically be all mutual find – there will be a fair proportiomn of fixed-income asset invested. Since it is hypothetical, it doesn’t matter if it’s correct how is someone going to prove you are wrong?
Go on a site like TD Ameritrade – it may help you find a product you can use for your model.
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It appears that rather than projecting future gains what is being asked for is the previous month’s gain. Thus, on the first day you deposit $ 200. One month later, before you make your next deposit, you calculate your gain for that month.
Example:
Start of month $ 200
End of month value $ 201
Gain (earned interest):
$ 201-$ 200 = $ 1
Rate of Return:
$ 10/$ 200 = 0.005 per month
0.005 x 12 = .06 (6%) on a yearly basis.
____________
Next month the starting value is $ 401 (Last month’s ending value ($ 201) plus your contribution ($ 200)).
Do this for each month. The result for each month will likely be different and some months may even show a loss.
Realistic results might look like this:
Month #: 1 , 2 , 3 , 4 , 5 , 6
Interest %: 6 , 4.3 , 11 , -9.2 , 0.2 , 4.3