Medfield College's $10 Million Endowment Fund Is Not Allowed to Spend

question 30

Multiple Choice

Medfield College's $10 million endowment fund is not allowed to spend any contributed capital or any capital gains. The fund may only spend investment earnings. The fund is expected to need between $500 000 and $1 000 000 to pay for new lab equipment for the science building. Which of the following is/are true?
i. The fund should have a target rate of return of at least 10%. II. The limitations on spending require the fund to limit its considerations to growth shares.
III. The requirement to spend money out of the fund this year provides a liquidity constraint that may reduce the fund's rate of return.

• A)I only
• B)II only
• C)I and III only
• D)I, II and III

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