QUESTION ONE $[20$ Marks$]$

a$)$ Briefly discuss on any five $(5)$ roles of personal finance in Retail Investors.

$[10$ Marks$]$

b$)$ Discuss how Institutional Investment Companies can address the possible mismatch between the goals of the Individual Investors and that of the Managers of the Company. $[10$ Marks$]$

QUESTION TWO $[20$ Marks$]$

a$)$ Briefly explain, with three $(3)$ points, why the shares of Investment Trust are

sometimes traded at a discount. $[6$ Marks$]$

b$)$ JameswishestoinvesthisTZS$50,000,000$inoneoftheUTTProductstoboost his future income. According to the available information, Umoja Fund and Bond Fund are the most attractive investment products compared to the other four UTT products.

The following information is also available regarding the two products

Products

Details

Umoja Fund

Bond Fund

Net Asset Value $($TZS$)$

$285,837,648,877\mathrm{.}52$

$202,502,972,596\mathrm{.}22$

Total Units issued

$346,139,632\mathrm{.}08$

$1,788,596,864\mathrm{.}54$

Market Price per Unit $($TZS$)$

$743\mathrm{.}2072$

$113\mathrm{.}2189$

Initial Costs $(\%$ of the value of investment$)$

$10\%$

$5\%$

Annual Management Costs $(\%$ of the value of the fund$)$

$2\%$

$1\%$

The average rate of Return

$10\%$

$7\%$

$2$

You are a market expert, and James has approached you to facilitate him in understanding the above product to enable him to make such an investment decision.

Required: With relevant calculations, advise James in each of the below scenarios:

i$.$ James is a long term investor and wants to invest in an investment which will provide high value in $20$ years' time. If Umoja Fund is subject to an annual tax of $20\%$ and Bond Fund is subject to a deferred tax of $30\%,$ which of the two products is the best for James? $[6$ Marks$]$

ii$.$ James has obtained insider information that UTT is expecting to buy back $20\%$ of existing Umoja Fund units in six months$$ time. If the discount$/$premium remains the same after the buyback, compute the new Net asset Value per share, New Market Value per share and advice James on whether he should buy the Units now or wait after the buyback exercise is complete. $[8$ Marks$]$

QUESTION THREE $[20$ Marks$]$

a$)$ Briefly discuss on any five $(5)$ advantages of a defined contribution pension

plan over a defined benefit pension plan. $[5$ Marks$]$

b$)$ Briefly explain the conditions for an employee to qualify for old$-$age pension benefits under the Public Social Security Fund Act, $2018$ and its regulations of

$2018$ as amended. $[5$ Marks$]$

c$)$ Mr$.$ Jangala has just been employed by XYZ LTD$,$ a company which allows its employees to have a private arrangement for their retirement pension. Mr$.$ Jangala is $30$ years old and is considering contributing to a private pension

$3$

fund, which will guarantee him monthly payments equal to $34$ of his current

income, which is fixed at TZS $4,000,000$ per month.

Required:

i$.$ If the expected real interest rate is $6\%$ per year, how much should be accumulated in the pension fund to meet the expectations of Mr$.$ Jangala if he lived for $12$ years after retirement? $[5$ Marks$]$

ii$.$ If Mr$.$ Jangala is to retire at the age of $60$ years, how much should be contributed monthly to achieve the desired retirement benefit? $[5$ Marks$]$

QUESTION FOUR $[20$ Marks$]$

A certain company is currently listed at Dar es Salaam Stock Exchange $($DSE$),$ with its market capitalization value standing at approximately TZS $1\mathrm{.}31$ Trillion. Its share prices at the end of the last ten successive months were: TZS $295$; TZS $350$; TZS $312$; TZS $435$; TZS $530$; TZS $432,$ TZS $510,$ TZS $385,$ TZS $416$ and TZS $420.$

Required:

a$)$ Compute the average $($end of month$)$ price of the shares. $[3$ Marks$]$

b$)$ EstablishhowmanysharescouldbeboughtwithTZS$3,450,000$attheaverage

price. $[3$ Marks$]$

c$)$ What is the resulting shareholding worth at the end of the ten$-$month period?

$[3$ Marks$]$

d$)$ SupposethataninvestorspreadtheTZS$3,450,000$investmentevenlyoverthe ten months in order to benefit from TZS cost averaging $($i$.$e$.,$ investing TZS

$4$

$345,000$ at the end of each month$).$ Establish how many shares were bought.

$[8$ Marks$]$ e$)$ What was the average price of the shares bought? $[3$ Marks$]$

QUESTION FIVE $[20$ Marks$]$

a$)$ Briefly explain on the three $(3)$ main reasons as to why institutional investors prefer investing in a passively managed fund. $[6$ Marks$]$

b$)$ ATanzanianinvestorisconsideringa$5-$yearinvestmentofTZS$350$millionin

a foreign mutual fund that uses an index tracker fund. The index tracker fund has no initial charge, but charges an annual management fee of $1\mathrm{.}3\%$ of the value of the fund and average annual share dealing costs of $0\mathrm{.}7\%.$

Based on the latest information given in the Financial Times newspaper, the long term average real rate of return on a balanced portfolio of shares is $5\mathrm{.}4\%$ p$.$a$.,$ and the performance is expected to continue for the next $5$ years. On the assumption that the funds match the general market performance:

i$)$ Briefly explain on how an index tracker fund works. $[2$ Marks$]$

ii$)$ Whatistheannualtotalexpenseratio? $[4$Marks$]$

iii$)$ What is the expected value of the index tracker fund after $5$ years? $[6$ Marks$]$

iv$)$ What are the effects of the expenses on the expected average annual return of

the tracker fund?