M&B3 3rd Edition by Dean Croushore

Exercise 6

Some people have the opportunity to invest in stocks in a tax-advantaged retirement plan, such as a 401(k) plan. Consider the difference between Andy, who is able to save in a taxadvantaged plan, and Ben, who must pay taxes on his return each year. Both invest $100,000 in the same mutual fund at the same time and always reinvest their earnings in the fund. Suppose that the return on the mutual fund is 7 percent each year and that the tax rate is 15 percent. (Note that Ben must pay taxes each year on his earnings, so he can reinvest only his after-tax earnings; Andy, however, pays the 15 percent tax rate when he retires and withdraws his funds.)
a How much do Andy and Ben each accumulate over 10 years
b How much do Andy and Ben each accumulate over 30 years