# Taxable Accounts vs Tax Deferred Accounts

Hey guys, This is probably a dumb question, but I was trying to do problem number 14 and 15 in the CFAI text, volume 2, which deals with calculating future values of taxable accounts and tax deferred accounts invested in stocks and bonds. When calculating the future value of a taxable account invested in stocks, they use FV = (1+r)^n * (1-T). But when they calculate the FV of a taxable account invested in bonds, they use FV = (1+r)^n * (1-Tcg) + Tcg. Is it only with bonds that we use the capital gains equation?

I think you mix up a bunch of formula. FV = (1+r)^n * (1-T) is for tax-DEFERRED account which is used both for bond and stock since the ENTIRE value of the account is taxed (here at 40% rate) at withdrawal in the future. For taxable: Bond is paid interest AND TAXED annually, so the AFTER Tax return is compounded annually. Stock only appreciates the value so no tax paid annually, so at withdrawal in the future, tax is paid on the value appreciation, i.e. tax is paid on the DELTA --> tax* (Value Future - value at start).