Past Exam - 2007 5A- Endowment Return Requirement

[CFA 2015]

CFAI’s tricky wording threw me off.
Per CFAI, return requirement of endowment= (1+spending)(1+INFL)(1+inv mgt fee)-1
For this question, they use 3.25% (The university’s operating exp are expected to grow at a nominal rate of 3.25%). Why would I assume the nominal growth rate of the operating exp is the INFL rate? There are no growth factors other than INFL? And they did not use the given INFL 2.5%.

 

[CFA 2015]

Nobody?

 

[da_mad_tiki]

the growth rate of the university expenses is a more accurate figure to use as inflation for the endowment as compared to broad inflation, is my deduction here

 

[cpk123]

if the institution has a inflation rate which is different from the normal economic environment - you always use that.
You need to consider the Inflation rate applicable to the particular foundation, all the time.

 

[CFA 2015]

da_mad_tiki wrote:
the growth rate of the university expenses is a more accurate figure to use as inflation for the endowment as compared to broad inflation, is my deduction here

Well, why would I assume the growth rate of operating exp=INFL? There could be other factors that grow the operating exp too, e.g. the increase of the number of students.