The endowment fund for The University of Southern California state in their 2019 endowment report specify the endowment investment objective as:

"Recognizing that market volatility and economic change create both risks and opportunities, the university employs a long-term and active investing philosophy that responds to changing environments and takes advantage of valuation extremes. This approach is designed to enable the endowment to grow in real terms, providing meaningful annual returns that keep pace with inflation, while minimizing risk and volatility."

Regarding their spending policy, USC states "The payout is set annually by the Finance Committee of the Board of Trustees, and is generally between 4% and 6% of the average market value of the Endowment Fund for the previous 12 calendar quarters."

If USC does not forecast any further donations, inflation is forecasted to be 1% per annum and the desired real fund growth of 1.5%:

(i) calculate the expected real required return?

(ii) how will the spend (payout) policy impact the real value of the fund?

1.(i) Between 5.5 and 7.5%, and (ii) the spending policy will have a low impact on fund's real value since the payout will decrease if fund performance had been poor in the last 12 quarters.

2.(i) Not enough information provided to calculate the answer, and (ii) the spending policy will have a high impact on fund's real value since the payout will be based on the last 12 payouts.

3.(i) Between 6.5 and 8.5%, and (ii) the spending policy will have a low impact on fund's real value since the payout will be based on the last 12 payouts.

4.(i) Between 6.5 and 8.5%, and (ii) the spending policy will have a low impact on fund's real value since the payout will decrease if fund performance had been poor in the last 12 quarters.

5.(i) Between 5.5 and 7.5%, and (ii) the spending policy will have a high impact on fund's real value since the payout will increase if fund performance had been poor in the last 12 quarters.

What is the answer?