An independent foundation, unlike a DB plan, does not need to consider the correlation between plan sponsor financial performance and the performance of the portfolio.
That would be correct…
True… Foundation = No defined liability stream… Purpose = Making grants…
very good. how about this one? like a DB plan, the liquidity needs of an independent foundation fluctuate over time.
There is no liquidity need aside from the 5% min. spending rate for private foundations (in order to be tax-exempt)… I would say “False”…
the answer is “Agree - a.k.a. true”
Hum… I don’t think I agree… Foundations liquidity needs are defined by the spending rule… It does fluctuate over time because a fixed % spending of fluctuating assets does vary but in essence, the foundations are not required by any defined liability to provide any other funds than the required 5%… If it’s purpose it to increase the amount of grant-making, then yes, the liquidity needs should increase year after year but if it’s purpose is to provide a constant stream of grants year after year adjusted for inflation, then it should remain relatively constant on a real $ basis…
2006 CFAI sample, Question set 6, C
Check CFAI Volume 2 Page 395… In the example, under Liquidity Requirements…
i felt the same way as VinceMTL … that foundations spending need is not of a fluctuating nature … but got it wrong as per CFA guideline answer.