Reading 10 Example 1

real after-tax return = 3%

inflation rate = 4%

tax rate = 35%

What is the nominal before tax return?

I think it should be 3%/(1-35%)+4%.

But the book uses (3%+4%)/(1-35%).

Which one is correct?

I think tax is usually applied to nominal rates which is what the book calculates nominal first? Not sure but that is my thinking

I am also struggling with Q10. B in this reading. When calculating the new after tax real return , why have they not taken into account the need to support Rene? In Question 10.A.i. the solution mentions and takes this into account.

Why do you think that? What is your reasoning?

Read the vignette.

Top of page 189, first blue box, second bullet point, first sentence.