Reference no: EM131152431

There are two twins, Kathryn and Kristin. They work for the same employer. They are both in the 20% income tax bracket. Kathryn has $4000 deducted from her salary each year and puts it into a tax-sheltered (i.e., tax-deferred) retirement account. She feels good about the fact that, without the tax-sheltered plan, she would have had to earn $5000 and pay taxes on it in order to have $4000 to invest. She saves like this for 40 years. Sister Kristin does the exact same thing as Kathryn EXCEPT Kristin figures that she should also invest the extra $1000 that she would have had to earn to invest $4000. In other words, Kristin invests $5000 in the same kind of tax-sheltered account as Kathryn. They both earn 8 percent interest on their investments. At the end of 40 years, how much more money will Kristin have in her retirement account than Kathryn as a result of investing an extra $1000 per year. You can assume each year's contribution is made as a single amount at the end of the year. (Hint: The answer can be done with either one or two calculations. Do it both ways to as a way of checking your answer.)
answers can be

a. 26,000

b. 60,000

c. 120,000

d. 160,000

e. 260,000