The company has set up a foundation with a total of $50 million asset as of fiscal year end May 31, 20x2. The objective of the foundation is to promote the education on biology and biotechnology to elementary and high schools in the US, including educational course, summer research camp, scholarship and financial aid, with a total annual operating budget of $2,520,000. The foundation has received a pledge of $100 million of the donations from a variety of donators for the next five years. The foundation has budgeted $8 million due on January 31, 20x3, representing the final payment for purchasing a new office building and conference center. The nominal inflation using 12-month selections of the BLS's Consumer Price Index (or CPI) is estimated to be 1.1% in the country. During the annual board meeting, the foundations Investment Committee notes that the investment management fee paid to BlackRock Investment Capital is 1.3% per year. The committee has decided to review its IPS and recognizes that a revised asset allocation may be warranted.

1. What is the foundations required total rate of return? Please ignore the $100 million donation that has been pledged when estimating the return.
2. Do you think the foundation is able to assume average risk, below average risk, or above average risk? Justify your answer with at least two reasons.
3. Briefly discuss the tax constraint of the foundation. What does the foundation need to do in order for it to enjoy a virtually tax-exempt status?