While I am still whining about the 2002 exam…I might as well clear my doubts… In the institutional IPS, to calculate the return requirements, while aren’t we factoring inflation into the number? And why do we add the educational cost increase rate? How does this concern the university? Wouldn’t the cost affect students and not the endowment? I couldn’t wrap my head around it…
I havent looked at the question but this is what i think - you should be adding the inflation rate applicable to the specific entity in the question . The educational cost increase in the above case would apply to the endowment since they fund the university’s expenses which are more affected by the educational cost increase than the general rate of inflation . The endowment could be providing grants/subsidies to the students in addition to operational funding to the uni and thus it would affect the endowments spending rate .
1)Because the inflation is mostly likely take into consideration in the calculation of the PBO 2) Because it becomes the inflation rate for the school. understand that School and Health Care have higher inflation rate than that of state by the CPI. 3) understand the university uses revenue generates by the endowment to support the shcool expenses and they want to keep the real value of the portfolio at the same time, therefore it makes sence that the portfolio not onlysupport its portion on an inflation ajusted basis but also maintian the real value of the portfolio to continue to offer grant to your daughters and sons 
OK…i got that…what threw me off was educational cost…i was lookin at it from the other side…as in…tuition will be 3% more expensive …this affects the students and i thot they put it there to confuse us…oh well…thanks anyways…