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creating the stock analysis and portfolio development sections

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creating the stock analysis and portfolio development sections

Overview: In the first milestone, you prepared a client analysis. In this milestone, you will create the stock analysis and portfolio development sections of your final project.

 

First, you must understand what you are investing in. You have to know the underlying characteristics of the investment. What type of asset is it? What type of security? How is it priced? What are the expected cash flows? Who are the typical investors and what are their typical motives? If you do not understand the answers to those questions, then the initial expectations you develop about the value and risk of the asset will be fundamentally flawed. This sets you up for missteps that can lead to underperforming your investment objectives.

 

Second, you must be able to estimate the value of the asset. Valuation is about assessing the estimated cash flows of the asset. This is a key component of discerning absolute return potential and the differences between competing assets. It has a significant influence on the third step in the process as well.[unique_solution]

 

The third step is developing a thesis about an asset’s expected return and the associated risk. This is accomplished by assessing your valuation estimates against the current market price and any developing economic or market dynamics that may impact your expected valuation or its pricing. The market is constantly changing, and these expectations need to be monitored on a regular basis to ensure they continue to correspond to the objectives you are trying to achieve.

 

Finally, you must understand how the assets in a portfolio interact with one another. It is likely that you will not have just one investment, so any additional assets will impact the overall performance of the portfolio. You want to formulate a plan to add assets that, when combined together, will have the potential to meet your objectives. Putting all of these steps together into a consistent, thorough process will position you to better meet the investment objectives laid out at the beginning.

 

Prompt: This milestone involves creating a draft of the stock analysis and portfolio development sections of the final project. Use the provided spreadsheet to calculate your portfolio’s standard deviation and the Final Project Scenarios document.

 

Specifically, the following critical elements must be addressed:

 

  1. Stock Analysis: In this section, you will select five stocks from the provided list and determine their values by applying an appropriate valuation model

from the following options: price to multiple model (earning or sales), dividend valuation model, or free cash flow to equity valuation model.

 

  1. Determine the value of each stock by using an appropriate model based on the characteristics provided for each stock; use each model at least
  2. Provide a rationale for the stock valuation method you chose for each stock. Cite specific information to support your decisions.
  3. Using the calculated valuation, the current market price, and historical performance, determine the expected return for each stock.

 

  • Portfolio Development: In this section, you will develop a portfolio for a client (Ezra or Jacob and Rachel) based on the client’s risk tolerance, return objectives, and liquidity objectives. You will select appropriate assets from the provided list.

 

  1. For the client, develop a portfolio from the list of assets provided that is informed by your analysis of the client’s objectives and (if applicable) the stock valuation you determined.

 

  1. Calculate the expected portfolio return using the CAPM (beta) model. Based on the risk tolerance and return objective of the client you didn’t choose for this assignment, would you design an investment portfolio that has a higher or lower expected portfolio return, and why?

 

  1. Calculate the expected portfolio standard deviation. Based on the risk tolerance and return objective of the client that you didn’t choose for this assignment, would you design an investment portfolio that has a higher or lower expected standard deviation, and why?

 

Rubric

 

Guidelines for Submission: Your client analysis should be a 3- to 5-page Microsoft Word document, double spaced, with 12-pt. Times New Roman font, one-inch margins, and citations cited in APA format. Note that your submission may be longer than 6 pages as work must be shown for all calculations. You may use and upload an Excel workbook to show your calculations. In your written paper, if you are referring to data that is found within an uploaded Excel workbook, be sure to include a citation—for example, “the portfolio’s expected return is 7.2% (E64, Sheet1, WB1),” where E64 is the cell that the calculation took place in, Sheet1 is the tab, and WB1 is designating the name of your file. This ensures that your instructor can quickly and accurately check data entry, formula use, and financial calculations.

 

Critical ElementsProficient (100%)Needs Improvement (75%)Not Evident (0%)Value
Stock Analysis: DetermineAccurately determines the value ofDetermines the value of each stock, butDoes not determine the value of each17
the Valueeach stock using an appropriate modeldetermination contains inaccuracies, or modelstock
based on the characteristics providedapplied is not appropriate
for each stock
Stock Analysis: StockProvides a rationale for the stockProvides a rationale for the stock valuationDoes not provide a rationale for the17
Valuation Methodvaluation method chosen for eachmethod chosen for each stock, but rationale isstock valuation method chosen for each
stock, citing specific information tomissing components or misaligned, orstock
support decisionsinformation cited is not relevant or
nonexistent
Stock Analysis: ExpectedAccurately determines the expectedDetermines the expected return for each stockDoes not determine the expected17
Returnreturn for each stock based on thebased on the calculated valuation, currentreturn of each stock
calculated valuation, current marketmarket price, and historical performance, but
price, and historical performancedetermination is missing components or
contains inaccuracies

 

Portfolio Development:Develops portfolio from the lists ofDevelops portfolio from the lists of assetsDoes not develop a portfolio for the17
Develop a Portfolioassets provided that are informed byprovided that are informed by an analysis ofclient
an analysis of the client’s objectivesthe client’s objectives, but portfolio is missing
components or is illogical
Portfolio Development:Accurately calculates the expectedCalculates the expected portfolio return usingDoes not calculate the expected13.5
Expected Portfolio Returnportfolio return for the portfolio usingthe CAPM model but calculation containsportfolio return using the CAPM model
the CAPM model and accuratelyinaccuracies or other client is not accuratelyor does not discuss other client
discusses other clientdiscussed
Portfolio Development:Accurately calculates the expectedCalculates the expected portfolio standardDoes not calculate the expected13.5
Expected Standardportfolio standard deviation for thedeviation but calculation contains inaccuraciesportfolio standard deviation or does not
Deviationportfolio and accurately discussesor other client is not accurately discusseddiscuss other client
other client
Articulation ofSubmission has no major errorsSubmission has major errors related toSubmission has critical errors related5
Responserelated to citations, grammar,citations, grammar, spelling, syntax, orto citations, grammar, spelling,
spelling, syntax, or organizationorganization that negatively impactsyntax, or organization that prevent
readability and articulation of main ideasunderstanding of ideas
Total100%

 

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