Harvard University Once Paid Two Financial Managers, Who Helped Manage

question 93

Multiple Choice

Harvard University once paid two financial managers, who helped manage Harvard's $20 billion endowment, each about $25 million. Harvard defended their pay "as normal in the community of hedge-fund managers with which Harvard Management competes for talent." An economist probably would say that these pay levels:

• A) make sense if their marginal factor costs exceed $25 million.
• B) make sense if the value of their marginal product exceeds $25 million.
• C) makes sense if their efficiency value calculates out to that level.
• D) does not make sense because Harvard has the option of simply putting its funds into a random selection of assets that would do as well.

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Definitions:

Risk Analysis

The process of identifying potential risks, quantifying their impact, and developing strategies to manage and mitigate them, especially in business and projects.

Uncertainty

The state of being unsure or having doubts, often quantifiable in finance and science.

Output Variable

The variable in a study or model that represents the result or outcome of interest, influenced by input variables.

Bootstrap Tool

A statistical method that enables estimation of the sampling distribution of almost any statistic by resampling with replacement from an existing sample data.