Suppose the long-term expected rate of return on investment from investing in a stock portfolio is 6%. The marginal tax rate at the time of contribution is 30%, the marginal tax rate on investment income is 20%, and the marginal tax rate at the time of withdrawals either 20% or 50% with equal probability. The investment horizon is 40 years.

(a) What is the final account balance after tax of a regular savings account?

(b) What is the expected final account balance after tax of a 401(k) savings account?

(c) What is the expected final account balance after tax of a Roth 401(k) savings account?(d) Explain which account type a rational investor would choose.

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a the final account balance ... View the full answer