Add Inflation last , that's what I thought作者: laurab 时间: 2011-7-16 06:28
inflation is addressed with after-tax dollars作者: genuinecfa 时间: 2011-7-16 06:45
Just did a Schweser question that asked for the nominal before-tax return. Ex: [(1.05)(1.03)] / .7作者: neil1234 时间: 2011-7-16 07:02
real after tax return as starting point. add inflation to get the nominal after tax return. divide that by 1-t to get the before tax nominal before tax return. this to me makes the most sense as you would be taxed on the nominal return (which is what is implied if you work the above backwards starting with before tax nominal return.作者: torontoanalyst 时间: 2011-7-16 07:20
^ I agree with the reasoning of smithyse but in most of the answer keys i have seen uses R/(1-t) + inflation
So I think instead of adding, multiplying the inflation would be the safest way to go.
For example, [(1+R)*(1+I)/(1-T)] -1 would be give the same answer as [(1+R)/(1-T)*(1+I)] -1
