FIN 340 Milestone Two Guidelines and Rubric

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.

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:

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?

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 Elements Proficient (100%) Needs Improvement (75%) Not Evident (0%) Value
Stock Analysis: Determine

the Value
Accurately determines the value of
each stock using an appropriate model
based on the characteristics provided
for each stock

Determines the value of each stock, but
determination contains inaccuracies, or model
applied is not appropriate

Does not determine the value of each
stock

17

Stock Analysis: Stock
Valuation Method

Provides a rationale for the stock
valuation method chosen for each
stock, citing specific information to
support decisions

Provides a rationale for the stock valuation
method chosen for each stock, but rationale is
missing components or misaligned, or
information cited is not relevant or
nonexistent

Does not provide a rationale for the
stock valuation method chosen for each
stock

17

Stock Analysis: Expected
Return

Accurately determines the expected
return for each stock based on the
calculated valuation, current market
price, and historical performance

Determines the expected return for each stock
based on the calculated valuation, current
market price, and historical performance, but
determination is missing components or
contains inaccuracies

Does not determine the expected
return of each stock

17

Portfolio Development:
Develop a Portfolio

Develops portfolio from the lists of
assets provided that are informed by
an analysis of the client’s objectives

Develops portfolio from the lists of assets
provided that are informed by an analysis of
the client’s objectives, but portfolio is missing
components or is illogical

Does not develop a portfolio for the
client

17

Portfolio Development:
Expected Portfolio Return

Accurately calculates the expected
portfolio return for the portfolio using
the CAPM model and accurately
discusses other client

Calculates the expected portfolio return using
the CAPM model but calculation contains
inaccuracies or other client is not accurately
discussed

Does not calculate the expected
portfolio return using the CAPM model
or does not discuss other client

13.5

Portfolio Development:
Expected Standard

Deviation

Accurately calculates the expected
portfolio standard deviation for the
portfolio and accurately discusses
other client

Calculates the expected portfolio standard
deviation but calculation contains inaccuracies
or other client is not accurately discussed

Does not calculate the expected
portfolio standard deviation or does not
discuss other client

13.5

Articulation of
Response

Submission has no major errors
related to citations, grammar,
spelling, syntax, or organization

Submission has major errors related to
citations, grammar, spelling, syntax, or
organization that negatively impact
readability and articulation of main ideas

Submission has critical errors related
to citations, grammar, spelling,
syntax, or organization that prevent
understanding of ideas

5

Total 100%