jbct91
#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!
acoxen
#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%
You use the 5% as this is the required return. You can add in your answer that the additional objective for a surplus exists.
^this
the question will specify to calculate the minimum required return of the endowment/foundation.