The correct order to derive pretax nominal required return

CFA Level III
#1

Thought I have seen in the past exam that you need to do the pretax 1st then add the INFL. Also it’s mentioned in the LevelUp material.

In the Wiley mock, the add the INFL 1st then divide by 1-t to get the pretax.

Which one is the correct order? The results are different. Is Wiley wrong? Can someone please confirm?

#2

It’s on the front page…

#3

What is INFL? please don’t tell me its an acronym i am supposed to know…

#4

Found it. Thanks:)

#5

Inflation. Looks like I can’t use it as a valid acronym on the exam.

#6

What do you mean by that?

I found this thread, which just made me more confused.

http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91311817

I’m just going to roll with the geometric method the way Elan does it, which is

[(1+r)(1+Inflation) - 1] / (1-tax rate)

#7

Look here: http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91351497

There is no default; sometimes you add inflation then gross up for taxes, and other times you gross up for taxes then add inflation.

Read the vignette; it will tell you what to do.