Question

2) Assume that you invest 5 percent of your salary and receive the full 5 percent match from East Coast Yachts. What EAR do you earn from the match

Answer 1

Answer:

The EAR you earn from the match is 100%.

Explanation:

Because you will receive a full 5% match if you invest 5% of your pay, this means you will earn 100% of the match up to 5%.

For instance, if you put in 5% of your salary which is determined to be $500 (i.e. $10,000 salary * 5%), East Coast Yachts will match that amount up to $500. This means that you will receive a 100 percent effective annual return (EAR) from the match.

As a result, the EAR you earn from the match is 100%.