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CFA Level 1 Question of the Week - Portfolio Management

Matt_AnalystPrepMatt_AnalystPrep MontrealPosts: 106 Associate
edited December 2017 in CFA Practice Questions
What is the typical minimum spending requirement for an endowment fund, and how should the investment manager treat the investment portfolio to cover these needs?
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CFA Level 1 Question of the Week - Portfolio Management 5 votes

A. 2%; this part of the portfolio should be invested in moderately liquid assets.
0% 0 votes
B. 5%; this part of the portfolio should be invested in a homogeneous mix of assets focusing on short-term assets.
20% 1 vote
C. 5%; this part of the portfolio should be invested in very liquid assets.
80% 4 votes
moyo

Comments

  • The correct answer is C.

    Endowment funds have minimum spend requirements, typically 5% of assets, to prevent them from taking in contributions but not spending anything on the charitable or educational purpose.

    In the case of such a requirement, the investment manager should invest this portion of the portfolio in assets quite liquid – easily convertible to cash. This would all be part of the liquidity constraint within the IPS.

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