From Nominal Pre-tax to Real After-Tax

CFA Level III Portfolio Management
#1

Hi there,

I am dont understand the logic behind going from real to nominal and from pre-tax to after tax. There is many possibilities in the exam can give us and we need to know how to move from A to B.

For Example:

If you start with 9.3% Nominal Pre-Tax and want to go to Real After Tax

There is two ways to go about in the first step:

a. Do you take the (1-tx) to make after tax first

b. Do you substract the inflation first and then multiply by (1-tx)

I actually understand this one but in general is there a logic to undertand if you add or substract inflation first or if you start with the multiplication or divsion of (1-x).

Thanks

#2

I wrote an article on this that may be of some help: http://financialexamhelp123.com/inflation-in-required-rate-of-return-to-tax-or-not-to-tax/.

#3

Thank you very much. I will follow your guidelines.

#4

You’re welcome.