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.

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter15: Mutual And Exchange Traded Funds

Section: Chapter Questions

Problem 6FPC

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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	1^st	2^nd	3^rd	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.

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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