Question

QUESTION FOUR
A. Discuss two advantages and two drawbacks of mutual funds in Ghana 7 marks
B. The WIUC closed-end fund has GHS350 million in securities, GHS80 million in
liabilities and 20 million in shares outstanding. It trades at a 10% discount from net asset
value (NAV)
Required:
i. Calculate the net asset value of the fund 1 mark
ii. Calculate the current price of the fund 1 mark
C. Assume you purchased a low load fund at GHS10.30 with a net asset value of GHS10.00,
Required:
i. Calculate the percentage load of the fund 2 marks
ii. Calculate the new NAV if the fund’s net asset value went up 33.72%. 2 marks
iii. Calculate the cedi profit or loss per share based on your purchase price 2 marks
Total 15 marks

Answer 1

Ans A :

Advantages of mutual funds in Ghana

• Portfolio Diversification - Proper Risk management for retail investors
• Convenience of Investing through Mutual Funds

drawbacks of mutual funds in Ghana

• Higher Fees charged by mutual fund house
• Non -availability of proper rating agency/performance measure for mutual fund houses .

NAV = ( Asset - Liabilities) / shares outstanding

        = ( 350 - 80) / 20

         = 13.50

Ans B .i : NAV of the fund = 13.50

Current Market Price = NAV * ( 1 - Discount Rate) = 13.50 * ( 1 - 10%) = $ 12.15

Ans B ii. Calculate the current price of the fund = $ 12.15

C. Assume you purchased a low load fund at GHS10.30 with a net asset value of GHS10.00,
Required:

the percentage load of the fund = ( Purchased price of Fund - NAV of Fund) / NAV of Fund

                                                = ( 10.30 - 10.00) / 10.00

                                                 = 3.00%

Ans i : the percentage load of the fund = 3.00%

the new NAV if the fund’s net asset value went up 33.72%.

New NAV = Previous NAV * ( 1 + Increase in % of Fund)

                = 10.00 * ( 1 + 33.72%)

               = 13.372

Ans ii : the new NAV if the fund’s net asset value = 13.372

the cedi profit or loss per share based on your purchase price

profit or loss per share based on purchase price = Current NAV - Purchased price of Fund

                                                                       = 13.372 - 10.30

                                                                       = 3.072

Ans iii . profit per share based on your purchase price = 3.072