Real vs Nominal and Taxes

CFA Level III
#1

This has probably been asked a thousand times every single year. But just so that i get certainty on this. I am trying to calculate nominal before tax return from real return, the tax rate and inflation.

Is it:

[Real Return (after tax)+ Inflation] / 1-T = Nominal Return (before tax)

or

[Real Return (after tax) / 1-T] + inflation = Nominal Return (before tax)

#2

please read S2000’s note on this.

I believe the characteristics of the account need to be looked at too!

the 1st equation - the inflation is also being taxed … while in the 2nd one - Inflation is not being taxed.

#3

thanks. Do you know where the link to the note is?..

#4

http://financialexamhelp123.com/inflation-in-required-rate-of-return-to-tax-or-not-to-tax/

#5

superb! thanks!