Sharpe Ratio Before Tax Return

CFA Level III
#1

In Exam 1 Schweser book 2 problem 1 C…we are calculating roys safety first but you have to solve for sharpe first. the data gives the after tax expected return but they convert to a before tax return before inputting the expected return into sharpe. so is the expected return in sharpe or roys supposed to be before tax expected return or after? i could not find in any of the textbook where they talked about sharpe using either or.

#2

i always assumed it was gross of tax but they dont often ask you to work in the tax component

#3

I assume it’s before tax, because I have never heard of a “risk-free rate after-tax.”

#4

check out the exam 1 schweser book 2 problem 1 c. i had never seen anything like that and calc’d the sharpe based on the given after tax return. no clue why would convert it to before tax.

#5

Hey guys, Schweser has made a correction to that particular question. Basically, there’s no need to gross up the after tax returns.

http://www.schweser.com/news/news_updates.php?type=schweser&new_level=cfa3#practice_exams_vol_2

PS I’ve bookmarked this errata / update page lol

#6

Hey guys, Schweser has made a correction to that particular question. Basically, there’s no need to gross up the after tax returns.

http://www.schweser.com/news/news_updates.php?type=schweser&new_level=cfa3#practice_exams_vol_2

PS I’ve bookmarked this errata / update page lol