What does everyone think the answers is for this? The primary reason for an endowment to establish a spending rule is to: A) minimize spending fluctuations. B) minimize variance in portfolio value. C) enhance long-term protection of principal. D) ensure the cash flows of the endowment maintain their purchasing power.
C or A, but I’ll go with C
A - maybe something to do with intergenerational neutrality?
B Sorry I meant A
A - I am assuming here that the spending rule refers to the smoothing.
yeah A. they go over like 3 different ways to calculate spending rule to ensure it’s stability
I assume it is to enhance predictability of spending, which fits best under A.
A. This is for smoothing purpose. You don’t want to spend $1 last year and then $1million this year. - sticky
A, never mind i didnt read the question fully 
and the answer is?
It is A but I think C works better. Here’s Schweser’s comment. The primary reason for the establishment of a spending rule is to minimize spending fluctuations, since large fluctuations will undermine the objective of the endowment. The spending rule is typically based on portfolio value, but does not minimize variance in the value. Spending rules can affect the long-term value of the principal and the purchasing power, but these are secondary objectives in the establishment of a spending rule. Isn’t the objective of an endowment to balance the need for high current income with l-t protection of principal as well as ensuring purchasing power is not affected by the ravages of inflation? So if you have erractic spending patterns won’t this undermine the proctection of principal? I guess I don’t understand why protection of principal is second seems like they go hand in hand.
BOOO! Secondary Objectives, come on! That’s a dumb question then.
Bigwilly, thank you that’s all I wanted. Stupid question from Schweser, could go either way.
yeah…the spending rule is a %age of the portfolio, it’s not an absolute value…it’s built with the portfolio in mind - to keep it’s value ina managable range. I would have chosen C too.
spend rule and spending amount is different. Rule refer directly to smoothing rules