Developing an Investment Portfolio for a Client Assignment

Client Analysis

The project is divided into two milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Three and Five. The final product will be submitted in Module Seven.

In this assignment, you will demonstrate your mastery of the following course outcomes:

1. Differentiate between investment vehicles, asset classes, and security types for effectively selecting investment exposures

2. Apply appropriate models in determining the estimated value of stocks and bonds relative to current market prices for informing investment decisions

3. Apply portfolio measures in constructing comprehensive investment portfolios that appropriately address client risk and return objectives

4. Assess the risks associated with investments for their implications on expected returns

For this assignment, you will assume the role of a financial advisor responsible for developing an investment portfolio for a client. In developing the portfolio, you will interpret client financial information and craft a sound and informed portfolio that is personalized to the unique needs of your client. You will also select five stocks from a provided list and produce valuations by selecting the most appropriate valuation model. These valuations may also be used within the portfolio you are developing for your client.

Specifically, the following critical elements must be addressed:

I. Client Analysis: In this section, you will analyze your clients’ financial documentation and determine their risk tolerance and objectives. To effectively address the critical elements in this section, you must analyze the information for both client one and client two.

A. Analyze each client’s financial documentation in order to perform the following evaluative activities. Be sure to support your analysis with relevant client information.

1. Explain the clients’ risk tolerances.

2. Explain the clients’ return objectives.

3. Explain the clients’ liquidity objectives.

B. Using the three objectives above, write a brief investment statement classifying the clients into one of the following categories: growth, income, or capital preservation. Justify your response with specific client information.

II. 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.

A. Determine the value of each stock by using an appropriate model based on the characteristics provided for each stock; use each model at least once.

B. Provide a rationale for the stock valuation method you chose for each stock. Cite specific information to support your decisions.

C. Using the calculated valuation, the current market price, and historical performance, determine the expected return for each stock.

III. 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.

A. 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.

B. 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?

C. 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?

A. Provide a rationale to present to the client for the portfolio you have developed. In your rationale, include specific examples to support your recommendations, and be sure to address the following:

1. Explain how your recommendations align with the client’s risk tolerance.

2. Explain how your recommendations align with the client’s return objectives.

B. Using the provided ex-post portfolio return statistics, evaluate the portfolio’s performance and compare it to its appropriate benchmark. In your evaluation, be sure to address the following:

1. Calculate portfolio return.

2. Calculate the Sharpe ratio for the portfolio and benchmark.

3. Calculate the Treynor’s measure for the portfolio only.

4. Calculate Jensen’s measure for the period for the portfolio only