This is from Schwester QBank:
Cayse Medical Foundation (CMF), a private foundation, subsidizes research into an array of medical conditions. An external donor funds its operating expenses. Manny University Endowment (MUE) is a $500 million fund that contributes $30 million per year to the university’s operating budget, or about half the university’s budget, which grows by at least the inflation rate. Which fund has a higher risk tolerance?
A) CMF because CMF’s spending rate is low and the foundation does not need to grow its assets. B) MUE because CMF has greater liquidity constraints. C) CMF because CMF has a longer time horizon.
I thought that B would be the right answer, but not for the reasons specified in the answer choice. CMF relies on a donor contributions, which would jeopardize it’s ability to support opperating expenses and subsidies (hence lower risk tolerance). On the other hand, the university relies on the contributions from the endownment, making it more likely that MUE needs to have a higher risk tolerance in order to meet 6% contribution (30mil/500mil)+inflaiton. B showed up as not correct. Can anyone provide a justification for why one of the other answers A&C is the correct choice? Thanks