Inflation Pass Through

Did anyone else adjust the required rate of return for the inflation to = the real rate required rate of return?

yeah. real = 17.1% - 4% = 13.1%

Yes I think i did something like 1 / (r+ {1-infl flowthru}) but still had diffculty since I didnt have any answers matching.

I changed this answer THREE times. R=17.1, inflation was 4% inflation-flow through 75%. So it is 1/ real required rate of return + (.25*4). What was the real required rate of return though?

I think I added back 1% (being the residual of 75% of 4%)

yeah, the only way to get a matching answer was to adjust it using the approximate method which is a simple subtraction. i did the division thing first

Slash Wrote: ------------------------------------------------------- > yeah. real = 17.1% - 4% = 13.1% how come you can take all 4% out you pass 75% which means effectively you retain 1% and yes I changed my answer from ^^ to 17.1% - (4% * 25%) => 17.1 - 1% = 16.1 but didnt see anythign closer

I think I got 7 something for my answer. Was there an answer choice of 6 something?

there’s a formula for this: the P/E = 1/[real r +(1-passthrough rate) x inflation] schweser book 4 page 66, right at the bottom

the formula was 1/ req return + (1 - inflation pass through X inflation rate) i thought but the answerds were off from calculation. i got somethihng around 7 also i think

i found this one very frustrating because i had the formula nailed so i thought i’d be golden. but for the life of me i could not find the real rate for the denominator. i think i tried to back into it, but had to move on due to time constraints. ended up just picking the biggest answer. prob -1

-1 for me here

I forgot what I guessed!! I remembered the formula but freaked about trying to find the real r. So close yet so far on so many of these…

so is anyone positive what the answer was here? 13.1 or 7?

7 positive

7 was correct.

i hope so…

I took the exam in Singapore, we didn’t have this question

7.09 which is 7.1 or 7…Extremely positive on this one! (very few times, I get to say this)…

that because the question is about finding the PE, not rate…