INVESTMENT MANAGEMENT SAMPLE QUESTIONS

PREPARED
BY
EBENEZER BUGRI ANARFO

Question One
(a) Provide a brief explanation to each of the classification of shares provided below:
(i) Growth shares
(ii) Income shares
(iii) Blue chip shares
(iv) Speculative shares
(v) Cyclical shares
(vi) Defensive shares

(b) In each case identify and explain your view on the kind of investor you would expect to invest in
that kind of shares.

Question Two
Distinguish between open-end and closed-end mutual funds. In investment circles it is being argued
that such collective investment schemes pose more problems than the benefits they are said to provide
to individual investors. Explain the above statement bringing out the advantages and disadvantages to
investors for their participation in mutual funds
Question Three
a) What are financial futures? Explain the basic characteristics that distinguish a futures contract
from a forward contract.

b) Explain the role of each of the following parties in a futures contract

i. Futures commission merchant
ii. Locals
iii. Clearing house

Question Four
As an investment advisor, a client has approach you for a big-time investment looking for a
diversified portfolio. Explain to him the basic steps or processes you will follow in order to achieve
the best for the client
Question Five
a) Explain five kinds of risks that an investor in bond faces.

b) Distinguish between the Price Effect and the Re-investment Effect of interest rate changes on
a bond portfolio and discuss three strategies for dealing with these effects.

Question Six
The curvature of the bond price yield curve has been explained to be caused by three basic theories or
hypotheses, namely
(a) Liquidity preference theory
(b) Market segmentation hypothesis
(c) Expectation hypothesis
Explain each of the above and how they influence the price-yield curve

Question Seven
Explain what you understand by the term Efficient Market and the three forms of market efficiencies
as propounded by Eugene Fama in his 1965 seminal paper.
Discuss five anomalies to the efficient market hypothesis

Question eight
An investor does not believe in the existence of an efficient market and thus wants to benefit from
information regarding trading on the market. He is ready to purchase any information as long as that
information can lead to making supernormal profit. For each level of market efficiency, explain to this
investor the kind of information that relevant to be acquired in order to achieve this objective.

Question Nine

Describe the differences between financial assets and physical assets for each of the following
characteristics.
a) Divisibility
b) Marketability
c) Holding period
d) Information Availability
 SECTION B
Question One
The information below refers to the share prices and dividends on the shares of SPPC Limited, a
company listed on the Ghana Stock Exchange.

Date Dividends Per Share Share Price

GHp GH¢

January 12.00
February 3.0 10.80
May 4.5 11.50
August 2.5 14.50
November 3.2 13.20
December 12.00

Your client has 2000 shares in SPPC and wants to ascertain the return made during the period to
which the above data relate.
As an investment expert, you are required to:
(a) Provide the calculation of the investor’s return using the simple method
(b) Calculate the return made by your client using the Linking Method
(c) Recalculate the return made by your client using the Index Method
(d) Briefly explain the limitations you find about the method used by the simple method
(e) Indicate what proportion of the investor’s total return is from dividend yield and what
proportion is from capital gain
(f) What is the investor’s total wealth as at December ending assuming that dividends have been
invested by purchasing additional shares?

Question Two
You have been promoted to head of Treasury and Investment Management at Ecobank and have been
handed information on a number of issues for which immediate answers are required. For each
excerpt from the issues presented below answer the associated question(s):
(i) Ecobank holds ¢450million T-Bill but is in short of cash. It needs cash to meet the
requirement of a customer who has come to withdraw ¢400million.You have been asked
to approach Barclays Bank to sell the T-Bill for ¢395.5million on Monday morning with
agreement to repurchase the bill on Friday evening.
(a) How much in cedis does Ecobank lose in this transaction
(b) What is the Repo Rate on this transaction?
 (ii) You have just been offered a commercial paper with a face value of ¢45,000,000 which
bears a discount of 36% and has 182 days to mature.
(a) What is the cedi discount on the paper?
(b) How much will you be prepared to pay for this paper?

(iii) Ecobank plans to issue a 2-year bond with a face value of ¢500,000,000 bearing 20%
coupon rate. The market interest rate is 25%. The coupons are paid every six months. You
are to calculate the price of this bond.

(iv) An investor buys a 9% coupon bond at a price of ¢8,500,000 on 1st January 2005. At 31st
December 2005, he needed money to spend with his family in the new year and thus sold
the bond for ¢9,125,000. During the 12 months of holding the bond, he received a coupon
amounting to ¢765,000.
(a) Calculate the one-year holding period return on the bond for this investor.
(b) What is the current yield on the bond?

Question Three
As an investment analyst you have been asked to evaluate three mutual funds with the following
characteristics
Mega Fund: This invests in money market instruments and the shares of blue chip companies listed
on the stock market.
Bega Fund: This is a balanced fund which invests in shares of financial institutions and corporate
bonds in equal proportion.
Diva Fund: This is an index tracking fund which invests in all the shares of the companies listed on
the stock exchange. It was set up to mimic the Ghana Stock Exchange All-Share Index.
The information relating to the three funds for the last five years is provided below:

Year Mega Fund Bega Fund Diva Fund

1 33.60 27.90 14.70
2 18.30 -15.20 31.40
3 18.60 15.40 -13.30
4 -12.30 11.10 18.30
5 28.70 28.70 10.20
You have also been supplied with information that the Mega Fund has a beta coefficient of 0.90, the
Bega Fund has a beta coefficient of 0.95 while the Diva Fund has a beta coefficient of 1.0. The rate
on Government of Ghana Five-Year Treasury Note is 8.5%.
You are required to assess the performance of these mutual funds based on the following:
(i) Sharpe’s Performance Index
(ii) Treynor’s Performance Index
(iii) Jensen’s Performance Index
In each case explain your results. The marks are awarded equally between the calculation of the
performance measurement statistic and the explanation.

Question Four (A)

Assume that the GSE All Share Index is at 8,800 as at 20th January 2010.The risk-free rate on 91-day
T-bill is 12.5%. Dividend yield expected to be made from investing in the index over a 91-day period
is 4.5%.
You are required to:
(i) Determine the theoretical futures price for the GSE All Share Index
(ii) Your friend has approached you for advice saying that an investment bank is selling April
futures contract on the GSE All Share Index at 9050. Advice whether this is a good offer

Question Four (B)

A Ghanaian businessman received a loan of US$ 2000,000 on 1 st January 2010 from the United States
to finance his business in Ghana at a time that the exchange rate is ¢1.400/$. He is to pay the loan on
31st December 2010. He thinks that he has borrowed at a time when the United States Dollar is at its
lowest hence, he is afraid that by December 2010, the exchange rate may have moved to ¢1.515/$.
Standbic is offering a forward contract at a flat fee of GHP20 per dollar to be delivered on 31 st
December 2010 at an exchange rate of ¢1.455/$. The company’s treasurer is advising that they should
buy the contract and lock-in the exchange rate at ¢1.455/$.
You are required to show by calculation and explanation the reasonableness of this advice
(a) If the spot rate in December 2010 turns out to be ¢1.515/$ as predicted
(b) If the spot rate in December 2010 turns out to be ¢1.555/$
(c) If the spot rate in December 2008 turns out to be ¢1.405/$

Question Five
An investor bought 2000 shares of Ecobank Ghana Limited on 1st January 2010 through an
investment broker and instructed the broker to re-invest any dividends received in additional shares of
Ecobank. During the year, Ecobank paid three dividends. The information on dividends and share
prices at the time of dividend payments is indicated below:

Date Price Per share in Cedis Dividend Per Share in

Pesewas
January 20

April 25 8
July 23 10

October 18 12

December 24

The investor calculated the return on his investment for the one-year holding period using the simple
method but is not sure whether this is correct. You are required to:
(a) Determine what rate of return the investor obtained from the calculation
(b) Explain the limitations in the calculation in (a)
(c) Provide a correct calculation of the investor’s return using
(i) The index method
(ii) The linking method
(d) Show how much the investment is worth at the end of each month if the investor were to sell
the shares at the price prevailing in that month and divide the investor’s gain into dividend
yield and capital gain in both absolute and percentage terms.

Question Seven
Best In Life (BIF) is a market index which tracks the performance of shares of financial companies
listed on the Ghana Stock Exchange. The following table provides information on the share prices of
the companies forming the index:

Companie SHARE PRICES OF COMPANIES IN PERIODS

s
Periods 1 2 3 4 5 6
A 10 12.5 14.6 17.6 19.4 22.7
B 8.9 16.4 14.2 10.2 23.6 13.8
C 15.1 12.4 16.5 17.5 12.6 18.5

VOLUME OF SHARES TRADED IN EACH PERIOD

A 1200 1200 1200 1200 1200 1200
B 2500 2500 2500 2500 2500 2500
C 1500 1500 1500 1500 1500 1500

Using a DIVISOR of 3.0 design different indexes based on the information above using any of the
following.
 (i) Price-weighted
(ii) Equally-weighted
(iii) Value weighted
Provide your comments on the performance of the Index and the performance of the companies in the
light of the movement in the index.

Question Eight
Ama purchased a 182-Day Treasury Bill on 1 st July 2010. The Bill has a face value of GHC120,000
and a discount yield of 20%. She held the Bill for 75 days and gave it to James, her son, as a birthday
gift. James was due to travel so he held the Bill for 55 days and sold it to Kofi. Upon buying the Bill,
Kofi held it for 45 days and gave it to Rebecca as a present and she held the Bill till maturity. You are
required to draw a table and indicate for each holder of the Bill the following information
(i) Price at which the Bill was acquired or received
(ii) The total discount if the Bill had been held till maturity
(iii) The actual discount earned for the period in which the Bill was held
(iv) Explanation of the relationship between the Price and the Discount to maturity (ii)

A 91-Day Treasury Bill with a face value of GHC80,000 was sold at a price of GHC68,000.
(i) Calculate the percentage and the cedi discounts on the Bill
(ii) Calculate the interest and coupon equivalent yields on this Bill
(iii) After holding the Bill for 22.75 (one-fourth of its maturity period or days) it was used as a
collateral in a repurchase agreement with a bank for an amount of GHC78,000 and
repurchased in 5 days time. How much did the bank earn on this repo agreement and what
is the repo rate on the transaction?

Question Nine
Abacus Ltd is an investment fund that specializes in fixed income securities. At the end of 2010
the fund’s bond portfolio has the following information

Bond Yield to Maturity Price Duration Convexity

A 12% 1045 2.35 16.46
B 14% 2265 4.26 22.80
C 8% 1430 3.45 11.96
D 10% 1100 4.20 15.56
Assume that the yield to maturity on each bond increases by 4%, calculate
(i) The percentage by which the price of each bond will decrease
(ii) The amount in cedis by which the price of each bond will decrease
(iii) The percentage and the cedi decrease in the total value of the portfolio
Question Ten
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
(a) Sharpe Performance Index
(b) Treynor Performance Index
(c) Jensen Performance Index
For each fund indicate how the pensioner should allocate the lump sum based on
performance of the fund.
Question Eleven
A five-year bond is issued with a face value of GHC3000.The bond pays coupon semiannually at
10%. The yield to maturity is 8%. Another five-year bond with the same face value is provides a
coupon of 15% but the yield to maturity is 12.5%. You are required to calculate
 a) the price of each bond
b) the duration of each bond
c) the convexity of each bond
d) If interest rate increases by 500 basis points, calculate and identify which bond will
experience a higher change in price in terms of percentage and absolute amount.

Question Twelve
Ama purchased a 1-year Treasury Bill on 1st July 2016. The Bill has a face value of GHC200,000 and
a discount yield of 20%. She held the Bill for 75 days and gave it to James, her son, as a birthday gift.
James was due to travel so he held the Bill for 55 days and sold it to Kofi. Upon buying the Bill, Kofi
held it for 45 days and gave it to Rebecca as a present and she held the Bill till maturity. You are
required to draw a table and indicate for each holder of the Bill the following information
(i) Price at which the Bill was acquired or received
(ii) The total discount if the Bill had been held till maturity
(iii) The actual discount earned for the period in which the Bill was held
(iv) Explanation of the relationship between the Price and the Discount to maturity (ii)

A 182-Day Treasury Bill with a face value of GHC180,000 was sold at a price of GHC160,000.
(i) Calculate the percentage and the cedi discounts on the Bill
(ii) Calculate the interest and coupon equivalent yields on this Bill
(iii) After holding the Bill for one-half of its maturity period or days it was used as a collateral in
a repurchase agreement with a bank for an amount equivalent to 92.5% of the face value of the
Bill and repurchased in 5 days later. How much did the bank earn on this repo agreement and
what is the repo rate on the transaction?

Question Thirteen
Margin requirement is a key feature of traded derivative contracts. Suppose Gold futures for July
2016 delivery is currently trading at $1,230. The contract size is 100 ounces per contract. The initial
margin is $4,950 and the maintenance margin is $4,500. It is 17/05/2016, and you “go long in Gold
JUL 2016 Futures” at $1,230 per oz.
Complete the margin account below

Futures Margin
Price Margin
Gain/Loss Cumulative Call
Date ($/oz) Gain/Loss Account ($)

17/05/16 1,230 4,950

18/05/16 1,226
19/05/16 1,220
20/05/16 1,215
23/05/16 1,220
24/05/16 1,225
 25/05/16 1,230
25/05/16 1,240

Question 14
Joyce bought a year one T- note with face value of ₡140,000 for ₡95,000 she held for 120 days and
gave it as a birthday gift to her fiancée he also held the bill for 90 days and handed it her to her sister.
After holding it for 70 days, the sister also used it as collateral to buy ladies wear. The ladies wear
seller held it for 75 days and gave it to her husband. Design a table showing the days each person held
the bill, the price at which he/ she receive it and the total cedis discount.

Question 15
a) Aku bought a 182-day bill and held it the 90- days and want to sell it for you. She bought it for $
1,500 and receives ₡1800 on maturity. How much you pay for the bill?

b) Ama bought a 91-day T-bill for ₡ 1000 and will receive ₡1100 on maturity. What is the discount
on this bill?

c) You have just bought a Government of Ghana Three Year Note. The Note has a face value of
1000,000 cedis and bears a coupon of 12% payable semi-annually. The Note was sold to you for
1050756.921 cedis. If you hold the Note till the end of the three years and receive all the coupons
as schedule, what will be your yield to maturity?

d) Akua has offered a 91- day Bill with a face value of ₡109000 for which she paid ₡100,000 Akua
wants to know
i. The cedi discount she earns on the Bill and the corresponding discount yield.
ii. The cedis interest she makes on the bill and the interest rate
iii. After holding the bill for 90 days she handed it over to Ama, what price should Ama pay?

Question 16
a) Kofi is short of funds and need money to meet an impending huge withdrawal from a customer. It
has 91-day bill which is not yet matured. It approaches bank B and ask for a transfer of ₡250m
for which it uses the Bill value it ₡250m as collateral. Within 5- days bank A repurchased the bill
at 250.5m calculate the repo rate for this agreement.

b) Bond has a face value of ₡3000 and pays coupon of 12% per annum for 4 years, if the market
interest rate is 16%. How much will you pay for this bond. The coupon was to be paid semi-
annually and your answer be different.

c) Bond has a face value of 1000 with our (4) years to maturity, it pays coupon 10% per annum.
The market interest rate 8%. Calculate the duration of the bond
d) A bond has 5 years to mature. Its face value is 1500 and pays a coupon of 12% coupon is paid
on a semi- annual basis. The market interest rate is 14%
(i) What is the duration of this bond?
(ii) Assume that interest rate falls by 0.5% by how much will the bond price increase?
(iii) Compute the new price of the bond

Question 17
a)
Bond current Price Modified Duration
A 895.57 4.12257
B 625.95 7.3523
C 884.17 4.04855
Interest rate has increase by 10 basis point calculate by how much the portfolio value will change.

b) A Bond has a face value of ₵ 1000 and pays a coupon of 10% annually. It has five-year life. The
market interest rate (yield to maturity) is 10%.
(i) Find the Duration of this bond
(ii) Find the convexity of this bond
(iii) If the interest rate increase by 5%, by how much will the bond price decrease
(iv) Compute the new price of the bond

Question 18
a) Zero- coupon bond is selling at 20,00 with a maturity value of 110,000 pension fund knows that it
has a total ability of 115000 to pay in 5- years me. The zero- coupon bond is being sold at the
same time with a bond class A coupon of 5% per annum. Both bonds value 5- years to mature.
Which bond and should the pension fund purchase to meet the impending liability. The bond class
A is also selling for 100,000

b) A company issued a bond with a face valued of 120,000 with coupon of 11%. The bond matures
in 4 years and coupons are paid annually. The company intends setting up a sinking fund into
which it will invest an amount that will help it pay the bond’s last interest and face value when it
matures. The fund yields 9% per annum. How much must it pay into the fund?

c) Assume that, the beta co-efficient of the returns of a company is 0.8. The return on GSE all share
index is 25% and rate on a 91- day T- bill is 12%. What return should an investor in company A
shares require?

Question 19
AB Fund was set up with 20,000 shares @₵3.5 per share for the financial year to 31/12/2010 the
company’s position was as follow

INVESTMENTS
- 5000 shares in XY @₵2.5 per share
 - 10,000 shares in VW @₵300 per share
- 4,000 shares in UC @₵1.00 per share
- 10-year bond in AC corporation ₵15,000
- 5-year GIH – Edge security ₵10,000
- 1-Year T. note ₵15000
- 2-Year sovereign bond ₵20,000

LIABILITIES
- ½ of shares bought in VW is not paid
- Office rent due to be paid is ₵7500
- Management fees is 12% of the NAV after charging the fees
Calculate the Net assets value of the fund and assessed whether it is sold at premium or discount.

Question 20
You are thinking of investing in 3 mutual funds.
The summarize statistics on the funds are as presented below
Funds mean stand dev. Beta
A 11.2% 7.5% 0.82
B 15% 14.2% 1.60
C 25% 15% 1.01
Market index 22% 12% 1

Return on GOG 1 – year T – note 6.2% you have ₵20,000 and want to allocated this in order of
performance based on the following indexes.
a) Sharpe performance index
b) Treynor performance index
c) Jensen performance index

Assets the performance of the funds and show your allocation if your plan is to invest 50% in the best
fund, 30% in the next and 20% in the poorly performing funds.

Question 21
a) GSE composite index is ₵10284 now. If the risk-free rate is 12% per annum. If financial futures
on the index for 6 months is priced at 11240, is it fairly price

b) One year financed futures on a stock index is quoted at $ 1985. The index is currently $1829. The
risk free is 8% and investors expect dividends amounting to 6%. Is there any arbitrage
opportunity?
Question 22
(a) The following tab1e shows the NYSE composite index over a recent 15-year period:

End of NYSE
Year Composite
1988 156.26
1989 195.01
1990 180.49
1991 229.44
1992 240.21
1993 259.08
1994 250.94
1995 329.51
1996 392.30
1997 511.19
1998 595.81
1999 650.30
2000 656.87
2001 589.80
2002 472.87
2003 646.40

(i) Ignoring dividends, calculate the simple annual rates of return.

(ii) Calculate the arithmetic average of the annual rates of return.
(iii) Calculate the geometric average of the annual rates of return.
(iv) Compare your answers in Parts b and c. How do you account for the difference between
these averages?

(b) You have just collected your lump sum from the sale of your building which amounts to 100,000
cedis. You have decided to invest in two assets. From a detailed analysis you decided to invest
60,000 cedis in asset A and 40,000 cedis in asset B. The information gathered about the two
assets shows that asset A provides expected return of 12% with a standard deviation of 24%
while asset B provides 20% with a standard deviation of 22%. The correlation coefficient
between the returns on the two assets is computed by Databank as -0.6. You are required to
(i) calculate the portfolio expected return
(ii) calculate the portfolio standard deviation
(iii) compute the coefficient of variation on the portfolio.
Question 23
a) Calculate the correlation of Stock C with Stock D.

State of
Economy Probability Stock C Stock D
Excellent 0.4 20% 0%
Wonderful 0.6 0% 10%

b) The probability distributions of returns for Stock A and Stock B are given below:

State of
Economy Probability Stock A Stock B

Bad 0.2 –5% 0%

OK 0.3 0% 15%
Good 0.5 10% 30%

(i) Calculate the expected returns for Stock A and Stock B.

(ii) Calculate the correlation of Stock A with Stock B.
(iii) Portfolio Q is formed by investing 80% in Stock A and 20% in Stock B. Calculate the
expected return and standard deviation of Portfolio Q.
 SECTION A

Question One

The dynamism of the investment process requires that the investor re-strategize in the wake of new
developments on the financial market in order to make the most out of his/her investment.
(i) Discuss the above statement by explaining five new developments in the financial market that may
call for an investor to re-strategize [15 Marks]
(ii) Explain the key steps in the investment process which an active investor should adopt in order
to get the best out of an investment. [10 Marks]

Question Two

Closed-end mutual funds are not wholly advantageous investment conduits. Critically examine this
statement. [25 Marks]
 SECTIONB

Question Three

You are an investment analyst at African Equities Limited, an investment bank that specializes in the
shares of companies listed on African stock markets. A company that is seeking to make your firm its
investment fund managers for their staff provident scheme has approached you for initial discussion.
The company has 1000 shares in Aluworks bought on the Ghana Stock Exchange on behalf of its
staff. They have held the shares for one year. The information below relates to the share prices and the
dividends received by the company at various times during 2018.

Date Dividend per share ¢ Price Per Share ¢

January 1000
February 30 800
May 40 950
August 25 1050
November 45 1200
December 1000

The company contacted another fund management firm, Equator Investments, who assisted them in
computing their rate of return on the shares which shows a result of 14%. They are not sure whether
this is right because another investor with the same number of shares claims they made a return
different from 14 % over the same period.

As an investment expert, you are required to:

(a) Show how Equator Investments may have calculated the return [2 Marks]
(b) Recalculate the return made by your potential client using the Linking Method. [10 Marks]
(c) Recalculate the return made by your potential client using the Index Method. [10 Marks]
(d) Briefly explain the advantages your method has over the method used by Equator Investments.
[3 Marks]

Question Four

Gamma-Beta is a closed-end fund that invests in the shares of companies from diverse types of
industries. The terms of investment in the fund are stated as fellows
(i) Fees for the fund managers are agreed at a quarter of the value of shares held in SPPC or
26.8% of the value of shares held in Cal Bank, whichever is the bigger.
(ii) The fund invests only in the shares of listed companies
(iii) Dividends to investors will be equivalent to 10% of the Net Asset Value of the fund after
charging the dividend.
 (iv) Dividends will be paid after all other liabilities have been paid.
Gamma-Beta has invested in six companies on the Ghana Stock Exchange and has so far issued
10,000 shares selling at ¢ 11.5 per share. Their investments as at 30th May 2008 are shown below:

Name of Company Shares Held in Company Price of shares

SPPC 8000 ¢1.5
Camelot 7000 ¢2.5
Unilever 9000 ¢2.8
SG-SSB 12000 ¢3.0
Cal Bank 5000 ¢2.5
Starwin 8000 ¢1.8

Gamma-Beta's total liabilities as at 30th May 2008 are as follows:

(i) A quarter of the value of SG-SSB shares bought is still unpaid.
(ii) Half of the Cal Bank shares also remain unpaid for.
(iii) The fund managers' fees have not yet been paid.
(iv) The dividends to investors are still to be paid.

Using the information provided above, you are required to:

(a) Calculate the Total Asset Value (TAV) of the fund [4 Marks]
(b) Calculate the Net Asset Value (NAV) of the fund [10 Marks]
(c) Calculate the premium or discount per share and in total for the fund's shares
[5 Marks]
(d) Calculate the percentage premium or discount on the fund's shares [3 Marks]
(e) Your friend wants to invest in this fund explain briefly whether it is the right or the wrong
time to invest in this fund based on your calculations in (c) and (d). [3 Marks]

Question Five

African Capital Investment Company (ACIC) has decided to open a branch in Ghana as a first step in
diversifying its equity portfolios to incorporate emerging market assets. They are therefore assessing
the performance of three funds that have been suggested to them by their local consultant. The three
funds are:

(a) Campus Fund which caters to the investment needs of students and lecturers
(b) Hospital Fund which is meant for nurses and medical doctors
(c) All-Share Fund which is set up to mimic the GSE-All Share Index

Their decision to locate in Ghana is dependent on their perceived performance of the various funds
already operating in the country. They have gathered five years of return data and other basic statistics
on the funds; which are presented below:
 Year Alpha Fund Gamma Fund GSE Fund for All
Return (%) Return (%) Shares Return (%)
1 !8.5 24.3 18.3
2 10.3 9.4 4.7
3 -9.2 18.8 16.2
4 20.1 -12.6 31.4
5 14.3 20.4 -3.3
Beta Coefficient 0.34 0.55 1.00
Mean Return 10.80 12.06 13.46
Standard Deviation 10.57 13.27 11.92

The five-year average return on the Government of Ghana One Year Treasury Note is 8.0%. Based on
the information above they have asked you to present to them your assessment of the performance of
the above funds using the following performance measurement indexes:
(a) Sharpe's Performance Index [9 Marks]
(b) Treynor's Performance Index [8 Marks]
(c) Jensen's Performance Index [8 Marks]

In each case indicate which fund performed best

Question Six

You have been presented with the information shown below which are excerpts from the records of
Databank. You are required to provide answers to them:

(i) Databank holds ¢460million T-Bill but it needs cash to settle an investor whose investment
has matured and is expected to be paid ¢400 million. You have been asked to approach
Ecobank to sell the T-Bill for ¢415 million on the morning of 19 th May, 2008 with agreement
to repurchase the bill on the evening of 23rd May, 2008.
(a) What is the cedi cost of this transaction to Databank? [2 Marks]
(b) What is the Repo Rate on this transaction? [3 Marks]

(ii) You have just been offered a commercial paper with a face value of ¢92,000,000 which bears
a discount of 25% and has 91 days to mature.
(a) What is the cedi discount on the paper? [2 Marks]
(b) How much will you be prepared to pay for this paper? [3 Marks]
(iii) An investor buys a 12% coupon bond at a price of ¢10,500,000 on 1st January 2007. At 31st
December 2007, he sold the bond for ¢11,125,000. During the 12 months of holding the bond,
he received the coupon on the bond.
a) Calculate the one-year holding period return on the bond for this investor. [3 Marks]
b) What is the current yield on the bond? [2 Marks]

(iv) The results of Tender 1065 herd on 2nd tvfay2008 for Government of Ghana Securities show
the rates for 91 Day and 182 Day Treasury Bills as follows:

TREASURY BILLS AND NOTES

Securities Range of Bid Bid Rates Allotted in Full (% P.A)
Rates (% P.A)

Discount Rates Interest Rates

91 Day Bill 10.79 - 13.00 10.79 - 12.80 ?-?

182 Day Bill 11.00 - 12.70 11.00 - 12.70 ?-?
l Year Note 12.00 - 14.00 12.00 - 14.00
2 Year Fixed Rate Note 13.00 - 14.00 13.00 - 14.00
3 Year Fixed Rate Note 14.00 - 16.50 14.00 - 16.50

Source: The Ghanaian Times, Monday May 5, 2008

Using the Discount Rates provided for the 91 Day Bill and 182 Day Bill, calculate their Interest
Equivalent Rates indicated in the table with Question Marks (?). [10 Marks]
NOTE: DO NOT DRAW THE TABLE