Final answer:
To determine the fund's return objective, we must take into account the highest annual spending of 6% and adjust for total inflation of 3.3%, summing to a required return of 9.3%. The closest option to this requirement is 7.9%, although it is lower than the calculated objective.
Step-by-step explanation:
The correct option : d
To calculate the fund's return objective, we need to compensate for the fund's spending, as well as adjust for expected inflation in both the general economy and specific to golf equipment. The fund has spent between 4% and 6% annually, thus using the highest figure is prudent to ensure the fund's sustainability. Inflation in the consumer price index is expected to be 1.1% and the prices of golf equipment are expected to increase by 2.2%. Therefore, the total adjustment for inflation would be the sum of these two figures: 1.1% + 2.2%, resulting in a 3.3% inflation adjustment.
Given that the fund must at minimum retain its real value, we combine the spending rate and the adjustment for inflation: 6% (highest spending) + 3.3% (inflation adjustment) = 9.3%. However, we are provided with a range of potential return objectives, and the closest to our calculated requirement of 9.3% is option d) 7.9%. While none of the options provided fully cover the spending and inflation adjustments, 7.9% is the highest and therefore the closest to the calculated required return objective.