Ch 8 q 8.5

Hi

Can anyone explain the answer please - in the notes when it says we use a net real investment return on the current gain, must the nominal one used to calculste the real rate always be calculated by allowing for the tax?

So in this case the nominal rate is : 10% - 7% * 0.2 = 8.6%

It doesn't explain this deduction in the notes on ph 6/7

 

Yes, "net" means net of tax and "real" means in excess of inflation, so both adjustments are needed.