Lesson 10 of 10 · All lessons in this module
- Financial assets, yields and expected versus actual returns
- What an interest rate is made of
- Required return, risk premia and excess returns
- Holding period return
- Arithmetic and geometric mean returns
- Annualised and continuously compounded returnsVideo lesson
- Gross, net, after-tax, real and leveraged returnsVideo lesson
- Taxing price and income returns
- Leverage through call options
- Integrated cases: from total return to what the investor keeps
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 10 of 10 · 15 min
Integrated cases: from total return to what the investor keeps
A fund's headline return passes through a fixed sequence of adjustments, and the case is won by taking them in the right order and applying each to the right base.
In short
- First find which return the stem hands you: total (before all costs), gross (after transaction costs) or net (after management and administrative costs too).
- Total return − net return = transaction costs + management fee + administrative expenses. Each cost is subtracted once, never twice.
- Leverage is applied to the net return of the fund, using debt ÷ equity. Interest on the loan is the investor's own cost, not the fund's.
- Tax comes before inflation: take the after-tax nominal return, then divide by .
- Going backwards (net to gross) is addition: add back the expenses, and turn any fixed currency amount into a percentage of assets first.
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