To do this, you willchoose one clientfrom the two client scenarios you analyzed in Milestone One. You will be creating an investment portfolio for only one client so that you can take the time to build an optimal portfolio.

You will select and use valuation models to determine the values of different stocks. You will also determine the expected return of each stock. In this milestone, you will also begin to develop a portfolio for your chosen client from a list of provided assets. You will calculate the expected portfolio return and standard deviation.

What to Submit

Your client paper should be a 3- to 5-page Word document with double spacing, 12-point Times New Roman font, one-inch margins, and citations cited in APA format. Note that your submission may be longer than 5 pages because you must show your work for all calculations. You may use and upload an Excel workbook to show your calculations. Include a citation in your written paper if you refer to data that is found within an uploaded Excel workbook. In the example, "The portfolio's expected return is 7.2% (E64, Portfolio Standard Deviation, WB1);" E64 is the cell used for the calculation; Portfolio Standard Deviation is the tab, and WB1 is the file name.

Specifically, the followingcritical elementsmust 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) or dividend valuation model.
   1. Determine the valueof each stock by using an appropriate model based on the characteristics provided for each stock.
   2. Provide a rationale for thestock valuation methodyou chose for each stock. Cite specific information to support your decisions.
   3. Using the calculated valuation, the current market price, and historical performance, determine theexpected returnfor each stock.
2. Portfolio Development: In this section, you will develop a portfolio for a chosen client (Destiny or the Garcia family) based on the client's risk tolerance, return objectives, and liquidity objectives. You will select appropriate assets from the provided list.
   1. For the chosen client,develop a portfoliofrom the provided list of assets that is informed by your analysis of the client's objectives and (if applicable) the stock valuation you determined.
   2. Calculate theexpected portfolio returnusing the CAPM (beta) model. Clearly note what risk-free rate you used. Accurately discuss the other client's risk tolerance and return objective. Would you design an investment portfolio that has a higher or lower expected portfolio return? Why?
   3. Calculate theexpectedportfoliostandard deviation. Clearly note what risk-free rate you used. Accurately discuss the other client's risk tolerance and return objective. Would you design an investment portfolio that has a higher or lower expected standard deviation? Why?

Jacob and Rachel Garcia, 53 and 52, respectively, are married with four children. Two of the children are currently in college, and two are in high school. The Garcia family expects the other two children to attend college. One of their children in high school, Alex, experiences Down syndrome. The Garcia family wants to make sure Alex's future needs are met. They're considering creating a special needs trust to address this. The trust would support Alex's financial well-being and help him access the support services that he'll need in the future.The Garcia family has done well financially, and both parents earn about $275,000 before taxes each year. They have about $190,000 after taxes. They live frugally and can pay for all of their children's college expenses out of pocket. But they won't have much to save in six to eight years. They have made $900,000 by saving their money and growing their portfolio. They have been somewhat aggressive with their portfolio to date, with about 70%-75% in equities. However, they believe they need to plan their portfolio for semi-retirement in eight years and full retirement in 13 years. "I know we still need to be somewhat aggressive. We could live until we're 90. So we need to plan for some growth even in retirement." "We definitely can't afford to take a big hit in our portfolio. We don't have enough time to recover." "Our jobs allow us to work part-time in retirement. We will probably do so as long as we're able." "Can we allocate $100,000 in a safe vehicle for our son Alex?" "I think we'll need to draw on 3%-5% of our portfolio in retirement. We'd like to earn enough income from the portfolio to cover that." CAPM Inputs Average Stock Market Return: 10% (per year, as measured by the S&P 500 Index) Risk-free Rate: Use the current yield on a three-month Treasury bill as the risk-free rate using the U.S. 3 Month Treasury webpage from the module resources. Stock Analysis Table Symbol Estimated Beta Dividends Earnings Sales 5-Year Dividend Growth Average Industry P/E Ratio Average Industry P/S Ratio Free Cash Flow Growth IBM 0.86 Use Last Calendar Year Use Last Calendar Year Use Last Calendar Year 13.7 23.7 1.12 2.60% KO 0.66 Use Last Calendar Year Use Last Calendar Year Use Last Calendar Year 8.3 22.6 2.2 6.50% BMY 0.78 Use Last Calendar Year Use Last Calendar Year Use Last Calendar Year 2.9 24.4 3.37 N/A ORCL 1.1 Use Last Calendar Year Use Last Calendar Year Use Last Calendar Year 21.1 20.5 4.45 10% MMM 0.98 Use Last Calendar Year Use Last Calendar Year Use Last Calendar Year 15.1 23.8 2.59 7% BAX 0.75 Use Last Calendar Year Use Last Calendar Year Use Last Calendar Year -16.9 36.09 3.68 N/A NFLX 1.57 None Use Last Calendar Year Use Last Calendar Year N/A 52.5 6 N/A AKAM 1.34 None Use Last Calendar Year Use Last Calendar Year N/A 41.8 3.58 17% GE 1.12 Use Last Calendar Year Use Last Calendar Year Use Last Calendar Year 9.7 23.8 2.59 N/A Available Assets Table: Stocks Listed in Analysis Table and These Additional Assets Symbol Estimated Beta Standard Deviation SPY 1 13% IWM 1.15 16.50% EFA 1.03 15% EEM 1.09 20% SHY 0 1% IEF -0.2 6% TLT -0.48 13% LQD -0.02 5.25% HYG 0.38 7.50% Ex-Post Return Statistics Symbol Holding Period Return Standard Deviation Benchmarks Holding Period Return Standard Deviation IBM 8% 20.00% Growth 9.6% 13.1% KO 6% 13.00% Capital Appreciation 8.1% 8.6% BMY 13% 28.00% Income 7.7% 7.2% ORCL 2% 16.00% Capital Preservation 5.8% 5.2% MMM 6% 14.00% BAX -6% 16.00% NFLX 18% 45.00% AKAM 21% 37.00% GE 10% 16.00% SPY 9% 11.00% IWM 14% 18.00% EFA 9% 15.00% EEM -1% 19.00% SHY 1% 1.00% IEF 4% 6.00% TLT 4% 13.50% Symbol Holding Period Return Standard Deviation Benchmarks Standard Deviation Holding Period Return LQD 6.00% HYG 7% 8% 8.00%