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Week 5 Khan Academy Support Videos

Compound Interest

Even the mighty falter...Harvard's woes

When we talk about compounding interest and savings, another concept that is interesting to consider is an endowment fund.  Are you familiar with endowment funds?  If not, you might be interested in reading a bit about them.  Endowment funds are commonly used by nonprofits, hospitals, churches, and universities.  In simple terms, the institution sets aside money in a fund that will earn interest.  The endowment fund's principal amount is not touched.  The institution only uses the proceeds earned from the interest.  That way, the fund will always be around to give income to the institution and will not be depleted - in theory.

 

Back during tough times with our economy, the endowment fund managers at Harvard were making some bad decisions that cost the university a lot of money.  Take a look at this article from Forbes.  Although it is not scholarly, it does serve as a reminder that even those who are great at money management can make poor decisions.

 

http://www.forbes.com/forbes/2009/0316/080_harvard_finance_meltdown.html

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