The returns of the Arias Small-Cap Fund are the most volatile of all the mutual funds in the 401(k) plan. Why would you ever want to invest in this fund? ## A Job at S&S AirYou recently graduated from college, and your job search led you to S&S Air. Because you felt the company’s business was headed skyward, you accepted the job offer. As you are finishing your employment paperwork, Chris Guthrie, who works in the finance department, stops by to inform you about the company’s new 401(k) plan.A 401(k) is a type of retirement plan offered by many companies. A 401(k) is tax deferred, which means that any deposits you make into the plan are deducted from your current income, so no current taxes are paid on the money. Assume your salary will be $40,000 per year. If you contribute $3,000 to the 401(k) plan, you will pay taxes only on $37,000 in income. No taxes will be due on any capital gains or plan income while you are invested in the plan, but you will pay taxes when you withdraw the money at retirement. You can contribute up to 15 percent of your salary to the plan. As is common, S&S Air also has a 5 percent match program. This means that the company will match your contribution dollar-for-dollar up to 5 percent of your salary, but you must contribute to get the match.The 401(k) plan has several options for investments, most of which are mutual funds. As you know, a mutual fund is a type of investment company that pools money from many investors and invests the money in a portfolio of assets. When you purchase shares in a mutual fund, you are actually purchasing partial ownership of the fund’s assets, similar to purchasing shares of stock in a company. The return of the fund is the weighted average of the returns of the assets owned by the fund, minus any expenses. The largest expense is typically the management fee paid to the fund manager, who makes all of the investment decisions for the fund. S&S Air uses Arias Financial Services as its 401(k) plan administrator.Chris Guthrie then explains the retirement investment options offered for employees are as follows:### 1. Company StockOne option is stock in S&S Air. The company is currently privately held. The price you would pay for the stock is based on an annual appraisal, less a 20 percent discount. When you interviewed with the owners, Mark Sexton and Todd Story, they informed you that the company stock was expected to be publicly sold in three to

We make investments in different stocks and funds; in bullion; in bonds etc.Thus we make investments…

Answered: The returns of the Arias Small-Cap Fund…

The returns of the Arias Small-Cap Fund are the most volatile of all the mutual funds in the 401(k) plan. Why would you ever want to invest in this fund?

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter17: Retirement And Estate Planning

Section: Chapter Questions

Problem 3FPC

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