Traditional and Roth IRAs. With a traditional IRA, you get to deduct the amount you contribute from your current taxable income, invest the funds free from tax, but then pay taxes on the full amount you withdraw when you retire. Suppose your tax rate is 40 percent and you initially deposit $2000 in an IRA. The proceeds double in 6 years to $4000. You then retire and pay taxes on the $4000 at your 40 percent rate.

a. Taking into account your tax deduction for the IRA, how much did your investment in the IRA really cost you? $__ enter your response here. (Enter your response as an integer.)

What is your return after 6 years? __%. (Enter your response as an integer.)

b. With a Roth IRA, you do not get a deduction for your savings but the interest you earn is tax free. The outcome for a Roth IRA is better than the same as worse than for the traditional IRA.

c. Suppose you believed that in years tax rates would be higher. The Roth IRA - is not is preferred to the traditional IRA because

A. the Roth IRA is a better choice when future tax rates are higher because earnings are taxed.

B. the traditional IRA is a better choice when future tax rates are higher because the earnings are taxed.

C. the traditional IRA is a better choice when future tax rates are higher because the earnings are tax free.

D. the Roth IRA is a better choice when future tax rates are higher because earnings are tax free