2007 CFAI Old Exam questions

Help needed for the following questions:


  1. The Ingrams have a substantial asset base relative to their spending needs.

How do you know it’s “substantial”?

  1. Opportunities for additional income exist (reemployment, etc.). How do you know opportunities exist? Q2-C The 13% cash position is not consistent with the Ingrams’ low liquidity constraint. Where do you find “low liquidity constraint”? Q5-A This level of return is needed to cover the cost of the 4.00% spending rule, the university’s inflation rate of 3.25%, and the annual investment management expense of 0.65%. This is calculated by a multiplicative formulation: (1.040)(1.0325)(1.0065) – 1.0 = 0.0808 or 8.08% Why is the inflation 3.25% rather than2.5%? Q5-B ii. CU endowment’s current market value ($500 million) reflects an approximate 0.5% compound growth rate over 2002–2006. The endowment is just meeting the support expectation of CU. Why do you use 0.5% as reference point? I am thinking that 7.08% is less than 8.08%, so that the endowment is meeting the support expectation of CU. What’s wrong with my answer?

Thank for your inputs.