To 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.
In 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.