@nimeshgala
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Up4
Found the elaborate explanation, http://www.analystforum.com/forum/s/cfa-forums/cfa-level-iii-forum/91318764
Up3In the 2009 exam question, it seems that the account in which the investments are held is a deferred tax account and hence only withdrawals are taxed at 20%, therefore the unusual way of doing the pretax first and then adding the inflation. explained here http://www.finquiz.com/downloads/l3ss4los14.pdf
Funny, I was searching for the same reasoning yesterday and I did find a elaborate explanation on analystforums.com will try to find the link in my browser history.Up3To answer @lakshya25’s question about calculating returns geometrically, the reasoning is, since endowments’ and foundations’ Time Horizon is perpetual in nature, the difference between additive method and geometric method will cause a huge gap down the years.
I know they are not going to exactly earn the same return every year, but lets say they have a “Immunization God” who immunizes their portfolio and provides them with the exact same return every year, the difference in both the methods will matter.
