Try to put formulas apart a little while for this one:

Tax deferred: pay 40% tax rate at withdraw. Value subject to taxes is entire final value (initial investment + capital gains)

Taxable: pay taxes every year*

- except in case of stocks. If hold on taxable account, stocks will be in a tax deferred regime, but only on capital gains

Question 14 - Kaplan

a) Allocated 50,000 to tax deferred with 7% return and deferred 40% tax rate:

- 50,000 x 1.07^20 = 193,484
- After taxes = 193,484 * (1-0.40) = 116,090

b) Allocated 50,000 to taxable with 4% return and annual 40% tax rate:

After tax return: 4% * (1-0.40) = 2.40%

- 50,000 x 1.024^20 = 80,347

A + B = 80.347 + 116,090 = 196,437

Question 15 - Everest

a) Allocated 50,000 to tax deferred with 4% return and 40% deferred tax rate:

- 50,000 x 1.04^20 = 109,556
- After taxes = 109,556 * (1-0.40) = 65,733

b) Allocated 50,000 to taxable with 7% return and 20% deferred capital gains tax rate:

- 50,000 x (1,07)^20 = 193,484
- subtract cost basis = 193,484 - 50,000 = 143,484
- compute capital gains after taxes = 143,484 x (1-0.2) = 114,787
- add back cost basis = 114,787 + 50,000 = 164,787

A + B = 164,787 + 65,733 = 230,520

Does it make sense now?