Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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A pensioner is expecting a lump sum of GHC 200,000 when she goes on pension next year and is thinking of the best way to allocate the funds to be received. An investment analyst has introduced her to a four funds as follows:

 

  • Gamma Fund: This specializes in money market instruments and bonds of large corporations
  • Delta Fund: This specializes in equities of exchange listed financial institutions
  • Beta Fund: This specializes in bonds and equities of all good performing companies
  • Index Fund: This is a portfolio that mimics the Ghana Stock Exchange All Share Index

The investment analyst gathered information about the performance of the four funds and this is presented below:

 

Funds

Mean Return

Standard Deviation

Beta Co-efficient

 

 

 

 

Gamma

15%

8%

0.25

Delta

20%

14%

1.20

Beta

18%

14%

0.85

Index

17%

12%

1.00

 

The rate on Government of Ghana five-year bond which is used as the standard risk-free rate is 8% per annum. The pensioner is looking for the best way to allocate the lumpsum when it is received. She intends allocating the money based on the performance of the funds as indicated by the standard methods for measuring mutual funds’ performance in the manner indicated below:

 

Performance

1st

2nd

3rd

4th

Planned Allocation

40%

30%

20%

10%

 

You are required to assess the performances of the four mutual funds above using the following

  • Sharpe Performance Index
  • Treynor Performance Index
  • Jensen Performance Index

For each fund indicate how the pensioner should allocate the lump sum based on performance of the fund.

 

 

 

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