A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests in stocks, bonds, short-term money market instruments and other securities. The performance of these mutual funds and the portfolio they build needs to be evaluated as frequently as possible. Evaluating the performance of these mutual funds is important for both existing and potential investors. The Table below provides the average return, standard deviation and betas of selected equity mutual funds over a period of three years. The average risk free rate for the period is estimated at 15%. Portfolio Average return Standard Deviation Beta Portfolio A 27.62 16 1.2 Portfolio B 20.12 15 0.9 Portfolio C 26.25 12 1.05 GSE return(benchmark) 16.18 10 1.0 Required: Estimate and compare the performance of the funds with the market using: i. Treynor’s measure ii. Sharpe’s measure iii. Jensen’s Measure
a. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests in stocks, bonds, short-term
| Portfolio | Average return | Standard Deviation | Beta |
| Portfolio A | 27.62 | 16 | 1.2 |
| Portfolio B | 20.12 | 15 | 0.9 |
| Portfolio C | 26.25 | 12 | 1.05 |
|
GSE return(benchmark)
|
16.18 | 10 | 1.0 |
Required:
Estimate and compare the performance of the funds with the market using:
i. Treynor’s measure
ii. Sharpe’s measure
iii. Jensen’s Measure
b. The issuing of security goes through a number of processes. Once the SEC has commented on the registration statement and a preliminary prospectus has been distributed to interested investors, the investment bankers organize road shows and undertake book building in the process.
Required: Explain the meaning and two (2) purposes of road shows as used in the preamble above.
c. You are considering a bond with a coupon rate of 10% per annum. Coupons are paid semiannually. The bond has a face value of ¢1000 and matures in 5 years. The yield to maturity is 11%. What is the
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