Hey guys, maybe I’m fried and I’m missing a key point in question 6 of the 2013 exam, parts B and C.
Part B asks for the nominal return, while Part C asks for the liquidity requirement in Year 2. For the nominal return part in B I subtracted the $2million donation from the required return calculation (or about 1.9%) because I saw it as the donation lowering the required the required return that the plan must acheive. I also saw another similar question in the past where a foundation was receiving dividends from a business it owned and the dividends somewhat lowered the required return, so I thought this was a similar question. But apparently this was not the case and there is no acknowledgement of the $2 million donation in the required return calculation. However, in Part C it asks for the liquidity requirement, and in the answer it takes into consideration the $2 million donation. In Part C I did not include it because I viewed the question as asking how much will the foundation need to pay out that year, donation or not.
Looks like I had them mixed up and I should not have acknowledged the $2million in part B, and should have in Part C. Is there an easy way to pick up on when this donation would need to be considered. Am I missing a key word or phrase here that could have helped me? It’s a bit confusing, but i also could just be burned out. Thanks, and good luck to all.