Quick Question on Endowment/Foundation Return Requirement

CFA Level III
#1

If a question asks to formulate the return objective for an endowment/foundation and their objective is:

“We intend to distribute 1% more than is required of us to maintain tax status”

Distributions to maintain tax-exempt: 5%

Inflation 3%

Mgmt Expenses: .45%

Do we calculate the minimum required, ie use 5%, or do we use their stated goal and use 5% + 1% = 6% (+inflation/expenses)

Thanks!

#2

In this example required return would be 6 + 3 + .45 = 9.45%

or if asked for compounded return (1.06)(1.03)(1.0045) -1 = 9.67%

#3

You use the 5% as this is the required return. You can add in your answer that the additional objective for a surplus exists.

#4

^this

the question will specify to calculate the minimum required return of the endowment/foundation.

#5

:+1: