Section D: Basic Data
Perform all work in Excel
3. Suppose that an employee starts working after completing her
MBA at age 25 at a starting salary of $50,000. She expects an
average salary increase of 4% each year. Her retirement plan
requires that she contribute 8% of her salary, and her employer
adds to her retirement plan an amount equal to 35% of her
contribution. She anticipates an annual return of 8% on her
retirement portfolio. Compute the total balance in her account at
the end of her 50th year by performing the following steps. In all
the following steps, make relative or absolute cell references as
appropriate; do not type numbers.
i) Type all the available information in an organized manner in
the designated Excel worksheet.
ii) Create the following columns Age, Salary, Employee’s
Contribution, Employer’s contribution, Total contribution, Returns,
iii) Type the current age in the first cell of Age column.
In the first row of the table (that is, where age =
iv) In Salary column, make a cell reference to current salary
(from the data you have typed in part (i)).
v) Compute Employee’s Contribution, which is 8% of current
vi) Compute Employer’s contribution, which is 35% of the
vii) Compute Total contribution, which is the sum of Employee’s
Contribution and Employer’s contribution.
viii) Leave Returns cell empty for the first year.
ix) Compute Balance, which is the same as Total contribution in
the first year.
In the 2nd
year (that is age = 26);
x) Increase age by 1 with a formula.
xi) Compute salary, which increases by 4% per year, and follow
the above process to compute Employee’s Contribution, Employer’s
contribution, and Total contribution.
xii) Compute Returns, which is previous years Balance times the
Annual return on investment.
xiii) Compute Balance, which is the sum of previous years
Balance, current years Total contribution, and current years
For any subsequent rows,
xiv) you should be able to drag down if you have made all cell
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