See R11, Q14.
Two parts to portfolio 1) bonds 2) stocks.
Bond part I understand. (1+ 4% (1-.40))^20 * $50k = 80347. no worries.
Stock part of the answer I do not get.
$50,000 * (1 - .07)^20 * ( 1 - .40) = $116,091
My problem w/ this answer; This approach taxes the entire deferred investment value and taxes it at 40%, when the problem specifically says “the cost basis is equal to the value held in taxable account.” Are they honestly saying here that the cost basis in the deferred account is therefore $0 and not $50k, but suddenly the basis in the taxable account is the full $50k just depending on which account it is in?
That’s so F’ing stupid, if that’s the case. I did the deferred tax calc on the stock, backing out the $50 K basis, then taxing the gain of at 40% and adding back in the $50 K basis.
My Math on the stock: ($50,000*(1+.07)^20) = 193,484.20 - $50,000 = $143,484.20 * (1 - .4)= 86,090.53 + 50,000 = 136,090.5
IDK how anyone can even write a problem like this where one part of the portfolio has a basis of 50k, then if the asset is moved into another account the basis suddnely disappears to $0. is that right?