Information given in the School Endowment example:
1. Annual operating budget of approx. $10m (90% goes to salaries and benefits for teachers and a small admin staff.
2. The school has no debt
3. The school is unlikely to expand in the future.
4. The school has endowment of $30m (composed of $10m for general unrestricted support, $10m for financial aid, $5m small funds with various donor use restrictions and $5m of unrestricted funds functioning as endowment).
Spending Policy for a fiscal year: calculated by adding 70% of prior year spending amount to 30% of endowment MV at the beginning of the prior fiscal year times the policy spending rate of 4.5%.
What I don't understand is how the following was calculated as part of the solution provided:
i) Risk objectives: Endowment is not a very large part of the school's annual budget (less than 14% of revenue) - How does one arrive at 14%?
ii) Liquidity: Only a small % of the fund approx 4% or 5 % is spent each year - How does one arrive at 4% to 5%?
1. Annual operating budget of approx. $10m (90% goes to salaries and benefits for teachers and a small admin staff.
2. The school has no debt
3. The school is unlikely to expand in the future.
4. The school has endowment of $30m (composed of $10m for general unrestricted support, $10m for financial aid, $5m small funds with various donor use restrictions and $5m of unrestricted funds functioning as endowment).
Spending Policy for a fiscal year: calculated by adding 70% of prior year spending amount to 30% of endowment MV at the beginning of the prior fiscal year times the policy spending rate of 4.5%.
What I don't understand is how the following was calculated as part of the solution provided:
i) Risk objectives: Endowment is not a very large part of the school's annual budget (less than 14% of revenue) - How does one arrive at 14%?
ii) Liquidity: Only a small % of the fund approx 4% or 5 % is spent each year - How does one arrive at 4% to 5%?