Tax Deferred Account - After-Tax Wealth

Reading 22 pg 293 Example 6:

CFA reading says to “compute after-tax wealth (FV) of $1mn today invested for 20 years in tax deferred account. pre-tax annual return is 10%, flat tax of 20%”

CFA calculation: FV = 1mn [(1+0.10)^20 * (1-0.2)] = $5,382,000

This seems wrong to me, they are taxing the cost basis with this formula.

Shouldn’t it be FV = 1mn* 1.10^20 = 6,727,500 → then FV = 1mn + (6,727,500-1,000,000)*.8 = 5,582,000


I haven’t looked at this specific question, but I suspect that the original $1 million wasn’t taxed before it was deposited in this account.

yeah the example doesnt say that and it would be inconsistent with other parts of the example. I’ll just report it, has to be wrong