Lesson 7 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 7 of 10 · 14 min
Gross, net, after-tax, real and leveraged returns
Peel a headline return down to what the investor keeps after fees, taxes and inflation, and remember that leverage magnifies whatever is left, both up and down.
In short
- Gross return: after trading costs, before management and administrative expenses; it reflects manager skill.
- Net return: gross minus management and administrative expenses; what the fund earned for the investor.
- Returns are pre-tax nominal unless stated. After-tax returns deduct taxes on income and realised gains; taxable investors judge managers on them.
- Real return: . After-tax real return: tax first, then inflation.
- Leveraged return : borrowing helps only if ; futures margin multiplies returns both ways.
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