This is referencing question 10 (EOC) in reading 8. If there is an expected real return requirement of 6.3% (50,400 of after-tax expenses/ 800,000 investable asset base) and inflation is 1%, why do we add 1% to the 6.3% to get 7.3% nominal requirement? TR is not listed but we are adding an after tax number to a pre-tax (inflation number), which does not seem intuitively correct. Lets say taxes are 30%, shouldn’t we adjust the inflation number to 1.42%? (1/(1-.3)) to compare apples to apples?since the return attributable to inflation will be taxed just like any other return? I might be over thinking this, but any advice would be appreciated.
Cheers,