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Dear Tutor
I am sort of confused in the which interest rate to use.
1) In which circumstances should I use Pre-Tax Discount Rate and Post-Tax Discount Rate.
2) For inflation related question, when do I use Real-rate and Money-Rate?
3) Some questions do state “After-tax Real Rate” or “Pre-tax Money-Rate” which is even more confusing.
Please enlighten me. Thank you!
I am sorry, but all of these questions are covered in full in my free lectures.
I cannot possibly type them all out here – you must watch the lectures.
1. We always use the post tax rate (unless told otherwise in the question) – it would be nonsense not to.
2. It depends what the question asks for – usually it is the money (nominal) rate as applied to the money (nominal) cash flows.
3. There should be nothing confusing at all if you have studied the above properly.
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