Show calculations and add apa references:

I. Client Analysis

Client One: Destiny

Risk Tolerance: Destiny, a 26-year-old professional, has a high tolerance for risk. She is comfortable with potentially losing 30% to 40% of her portfolio value in pursuit of greater returns, indicating her resilience to market volatility. Her youth, stable income, manageable living costs, and recent $60,000 windfall support her ability to take on high-risk investments without jeopardizing her financial well-being.

Return Objectives: Destiny is a growth-oriented investor seeking aggressive capital appreciation. Her intent to increase her stock market exposure, coupled with her enthusiasm for stock tips, reveals a desire for returns well above average market benchmarks. An appropriate long-term expected return for a growth investor like Destiny ranges between 9% and 12%, given her focus on high-growth assets.

Liquidity Objectives: Although aggressive, Destiny still emphasizes liquidity. Her $20,000 in savings and consistent $650 monthly investments show financial prudence. She also maintains cash reserves to prepare for personal milestones (e.g., wedding ring, engagement), illustrating a need for moderate liquidity despite a long-term focus.

Investment Classification: Destiny is best classified as a growth investor due to her high-risk tolerance, ambitious return goals, and ability to manage short-term liquidity. Her financial strategy prioritizes capital appreciation through aggressive equity exposure, appropriate for her life stage and financial flexibility.

II. Stock Analysis

Selected Stocks and Valuation Models:

1. IBM (International Business Machines)
   • Valuation Method: Price-to-Earnings (P/E) Ratio
   • Calculation: EPS = $9.50; P/E = 14; Intrinsic Value = $9.50 14 = $133.00. Current price = $130, indicating it is valued.
   • Expected Return: 10% annually based on historical earnings growth and dividend support.
2. BMY (Bristol-Myers Squibb)
   • Valuation Method: P/E Ratio
   • Calculation: EPS = $8.00; P/E = 10; Intrinsic Value = $8.00 10 = $80.00. Current price = $75, moderately undervalued.
   • Expected Return: 8% annually based on dividend yield and modest growth outlook.
3. NFLX (Netflix)
   • Valuation Method: Price-to-Sales (P/S) Ratio
   • Calculation: Revenue per share = $28; P/S = 6.5; Intrinsic Value = $28 6.5 = $182.00. Current price = $175, showing room for appreciation.
   • Expected Return: 15% annually, fueled by global content expansion.
4. AKAM (Akamai Technologies)
   • Valuation Method: P/E Ratio
   • Calculation: EPS = $6.00; P/E = 18; Intrinsic Value = $6.00 18 = $108. Current price = $100, slightly undervalued.
   • Expected Return: 12% annually due to internet security sector growth.
5. SPY (S&P 500 ETF)
   • Valuation Method: Dividend Discount Model (DDM)
   • Calculation: Dividend = $6.20, Growth Rate = 3%, R = 9%
   • Expected Return: 10% annually with market-diversified exposure.

III. Portfolio Development

Asset Allocation (Based on Destiny's Growth Profile):

• IBM: 20%
• BMY: 20%
• NFLX: 20%
• AKAM: 20%
• SPY: 20%

Expected Portfolio Return (Using CAPM):

• Risk-Free Rate: 4.25% (10-Year U.S. Treasury)
• Market Return: 9.0%

Weighted CAPM returns across the portfolio yield an expected return of 9.998%.

Portfolio Standard Deviation (Detailed Calculation):

• Individual standard deviations: IBM (20%), BMY (18%), NFLX (45%), AKAM (30%), SPY (16%)
• Average correlation: 0.25
• Portfolio variance is calculated using:
• Covariance matrix created using correlations and volatilities
• Resulting Portfolio Standard Deviation = 16.84%

Comparison with Garcia Family (Client Two): Their portfolio would target lower returns (~6.5%) and risk (~11%). Destiny's profile demands higher returns and volatility, which this portfolio accommodates.

IV. Portfolio Performance Evaluation

Portfolio Rationale for Destiny: This portfolio balances immediate needs with long-term wealth creation. It uses high-growth equities supported by strong valuation methods and reserves liquidity for upcoming expenses. Sector diversification in tech, healthcare, and broad market indices aligns with Destiny's strategy.

Sharpe Ratio:

Benchmark Comparison (S&P 500):

• Expected Return = 9.0%
• Std Dev = 16%
• Sharpe = 0.30

Conclusion: Destiny's portfolio marginally outperforms the market benchmark on a risk-adjusted basis. The combination of rigorous valuation, growth-oriented allocation, and attention to liquidity makes this a sound investment strategy tailored to her objectives.

References

• Chen, J. (2024, July 20). Dividend discount model (DDM). Investopedia. https://www.investopedia.com/terms/d/ddm.asp
• Fernando, J. (2024, July 30). Price-to-earnings (P/E) ratio. Investopedia. https://www.investopedia.com/terms/p/price-earningsratio.asp
• Nguyen, J. (2024, July 24). Choosing the Best Stock Valuation Method. Investopedia. https://www.investopedia.com/articles/fundamental-analysis/11/choosing-valuation-methods.asp
• Yahoo Finance. (2025). https://finance.yahoo.com
• Morningstar. (2025). https://www.morningstar.com
• U.S. Department of the Treasury. (2025). https://home.treasury.gov