Answers
Roth IRA
pretax income =$ 2000
income afterr tax =(2000 -15% of 2000) =1700
FV of investments per year for 5 years at 8%
=1700(1.08)^5 +1700(1.08)^4 +1700(1.08)^3 +1700(1.08)^2 +1700(1.08)
= 10720.07
future value of investment in roth IRA = $ 10720.07
trraditional IRA = taxes are deducted from distribution investment per year = 2000
FV of investments = 2000(1.08)^5 +2000(1.08)^4 +2000(1.08)^3 +2000(1.08)^2 +2000(1.08)
= 12671.85
taxes paid = 12671.85
after tax value of investment = 10720.07
Since the investor fetch same returns of $10720.07 from both the investments, she would be infidfferent between the two investments.
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