Please explain these

[Mr.E]

1. Why investment fee not included in grant amount, while calc grant to be made?

2. Why NOI growth is used instead of property growth in computing discount rates from CAP rate?

[castle123]

1. If the question asks for a foundation/endowment trust grant payout on a total return basis (e.g., 4.5% of the prior 3 yr. avg of calendar year-end values), the investment fee component is already netted out of the principal value of the portfolio.

2. Great question on CAP rates, and all I can think is that RE investors are often keenly valuing income yields from their leases and the Net Operating Income Yield is similar to the current yield on a bond. Property (market value) growth would be more of a total return comparison of various properties.

[Mr.E]

@castle123

the question asks for a foundation/endowment trust grant payout on a total return basis (e.g., 4.5% of the prior 3 yr. avg of calendar year-end values), the investment fee component is already netted out of the principal value of the portfolio

Thanks for the reply.

But, the solution only consider spending rate real. They did not include investment fees. I reckon investment fee is not incurred as part of grant.

[castle123]

You’re welcome.

That would be a valid assumption.