WSJ Summary 1

WSJ Summary 1 - defined contribution plan is a second type...

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        Due Date:  9/05/07     Name:   FNCE 4030 FNCE 4030 Weekly Wall Street Journal Assignment Submission Form Article Title:      401(k) Use Doesn’t Add Up Publication Date:  9/1/2007  1. What is a 401(k) plan?  A 401k Plan is an employer sponsored retirement plan. The plan also  has the option to be employer sponsored where the employer matches  a percent of employee contributions. 401k’s are investments, which the  company makes and the employee buys into. They invest in stocks,  bonds and other securities.  2. What is the difference between a  defined benefit plan  and a  defined contribution plan ? Both of the two are types of pension funds. A defined benefit plan is a  type of pension plan where a fixed formula sets retirement benefits.  These are the largest types of pension funds. In this plan the firm uses  assets to serve as collateral for life annuities given to employees. A 
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Unformatted text preview: defined contribution plan is a second type of plan where the employer is committed to making contributions based on a fixed formula. The employer takes contributions from its employees into a tax deferred savings account and lets the employee bear all risk and reward. 3. Why is it particularly dangerous to hold a large percentage of your investments in the stock of your employer? It is dangerous to hold a large percentage of your stocks in your employer for the same reason it is dangerous to hold a large percentage of stocks in any one company. Risk cannot be adequately diversified when a large percentage of the portfolio is in one asset. This means that you have an unnecessarily high risk on your portfolio just from holding a large percentage of stocks from your employer....
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This note was uploaded on 02/27/2008 for the course FNCE 4030 taught by Professor Madigan,ge during the Fall '07 term at Colorado.

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WSJ Summary 1 - defined contribution plan is a second type...

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