Docsity
Log inSign up
Docsity
Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity

Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan

Guidelines and tips
Guidelines and tips
Sell on Docsity
Sell on Docsity
Log inSign up

Prepare for your exams

Study with the several resources on Docsity

Find documents

Prepare for your exams with the study notes shared by other students like you on Docsity

Search Store documents

The best documents sold by students who completed their studies

Search through all study resources
Docsity AINEW

Summarize your documents, ask them questions, convert them into quizzes and concept maps

Explore questions

Clear up your doubts by reading the answers to questions asked by your fellow students

Earn points to download

Earn points by helping other students or get them with a premium plan

Share documents
download point icon20 Points

For each uploaded document

Answer questions
download point icon5 Points

For each given answer (max 1 per day)

All the ways to get free points
Get points immediately

Choose a premium plan with all the points you need

Study Opportunities

Choose your next study program

Get in touch with the best universities in the world. Search through thousands of universities and official partners

Community

Ask the community

Ask the community for help and clear up your study doubts

University Rankings

Discover the best universities in your country according to Docsity users

Free resources

Our save-the-student-ebooks!

Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors

From our blog

Exams and Study
Go to the blog

FIN 660 Diversified Risk Stock Portfolio, Study Guides, Projects, Research of Finance

Saint Leo UniversityFinance

Diversified Risk Stock Portfolio (2 pages) For this case study, you will create a portfolio of five to eight stocks that demonstrate diversified risk. Lis t the stocks along with their current price and previous 1-year and 5-year rates of return. Below the list of stocks, address the issues described below.  Explain the difference between portfolio risk and stand-alone risk.  Briefly explain why you selected each stock and how this investment portfolio would have less risk than selecting just one stock.  How does risk aversion affect a stock’s required rate of return?  Explain the distinction between a stock’s price and its intrinsic value. Your case study should be at least two pages in length, not counting the title and reference pages. You are required to cite and reference at least your textbook and stock data source. Use APA format to cite in-text and reference citations.

Typology: Study Guides, Projects, Research

2021/2022

Available from 08/19/2023

as-tutor
as-tutor 🇺🇸

3.9

(9)

527 documents

1 / 4

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
The portfolio includes stocks from large cap corporations that represent different industries:
1. Caterpillar
2. General Motors
3. Apple
4. IBM
5. Walmart
6. Target
7. Exxon Mobil
Stock prices were obtained from Yahoo Finance, and they cover a 5-year period. The
annual growth rates were calculated based on September 1st prices. Total 5-year return was
calculated using geometric mean.
Date
Stock prices
CAT GM AAPL IBM WMT TGT XOM
Sep 01, 2021 196.82 52.23 146.92 137.49 143.17 241.44 57.59
Sep 01, 2020 146.01 29.59 115.07 115.71 137.77 155.18 32.00
Sep 01, 2019 119.83 36.27 55.09 131.75 114.85 103.11 61.68
Sep 01, 2018 140.89 31.25 54.68 130.61 88.99 82.26 71.01
Sep 01, 2017 112.74 36.08 36.77 120.22 72.34 53.14 65.81
Sep 01, 2016 77.69 27.17 26.51 126.83 64.90 59.45 67.52
Date
Returns
CAT GM AAPL IBM WMT TGT XOM
2020-2021 34.80% 76.51% 27.68% 18.82% 3.92% 55.59% 79.97%
2019-2020 21.85% -18.42% 108.88% -12.17% 19.96% 50.50% -48.12%
2018-2019 -14.95% 16.06% 0.75% 0.87% 29.06% 25.35% -13.14%
2017-2018 24.97% -13.39% 48.71% 8.64% 23.02% 54.80% 7.90%
2016-2017 45.12% 32.79% 38.70% -5.21% 11.46% -10.61% -2.53%
Geometric 5-year returns
CAT GM AAPL IBM WMT TGT XOM
20.43% 13.96% 40.84% 1.63% 17.14% 32.35% -3.13%
pf3
pf4

Partial preview of the text

Download FIN 660 Diversified Risk Stock Portfolio and more Study Guides, Projects, Research Finance in PDF only on Docsity!

The portfolio includes stocks from large cap corporations that represent different industries:

1. Caterpillar

2. General Motors

3. Apple

4. IBM

5. Walmart

6. Target

7. Exxon Mobil

Stock prices were obtained from Yahoo Finance, and they cover a 5-year period. The

annual growth rates were calculated based on September 1st^ prices. Total 5-year return was

calculated using geometric mean.

Date Stock prices CAT GM AAPL IBM WMT TGT XOM Sep 01, 2021 196.82 52.23 146.92 137.49 143.17 241.44 57. Sep 01, 2020 146.01 29.59 115.07 115.71 137.77 155.18 32. Sep 01, 2019 119.83 36.27 55.09 131.75 114.85 103.11 61. Sep 01, 2018 140.89 31.25 54.68 130.61 88.99 82.26 71. Sep 01, 2017 112.74 36.08 36.77 120.22 72.34 53.14 65. Sep 01, 2016 77.69 27.17 26.51 126.83 64.90 59.45 67. Date Returns CAT GM AAPL IBM WMT TGT XOM 2020-2021 34.80% 76.51% 27.68% 18.82% 3.92% 55.59% 79.97% 2019-2020 21.85% -18.42% 108.88% -12.17% 19.96% 50.50% -48.12% 2018-2019 -14.95% 16.06% 0.75% 0.87% 29.06% 25.35% -13.14% 2017-2018 24.97% -13.39% 48.71% 8.64% 23.02% 54.80% 7.90% 2016-2017 45.12% 32.79% 38.70% -5.21% 11.46% -10.61% -2.53% Geometric 5-year returns CAT GM AAPL IBM WMT TGT XOM 20.43% 13.96% 40.84% 1.63% 17.14% 32.35% -3.13%

Standalone risk refers to the risk of investing all your money into one single asset. This

type of investment is considered very risky since the price of this asset might vary significantly

whether up or down and the profits and losses can be significant. The investor is betting

everything on the performance of one single stock and it can be a great investment or a terrible

one. If we look at the previous table, if the investor had purchased stocks from Exxon Mobil or

IBM, his/her investment would have been a very bad one. On the other hand, if the investor had

purchased Apple or Target stock, it would have been a great investment. Portfolio risk involves

diversifying risk and reducing it by investing in several assets. In this case, the average return of

the seven stocks for the 5-year period is 17.60%, which is not as high as the returns from Apple

or target, but much higher than the returns from Exxon Mobil and IBM. By diversifying risk, the

bad performance of one asset may be offset by the good performance of another asset. The larger

the diversification, the lower the risk, and the lower the potential profits.

I selected these stocks at random. I wanted to choose stocks from different industries and

that is why manufacturers are included (GM and CAT), tech companies (AAPL and IBM), large

retailers (WMT and TGT), and finally I searched for a company in the energy sector, and I chose

XOM. Diversification implies investing in different stocks and the more unrelated they are to

each other, the better. If I invested only in oil companies, their performance would probably be

similar to Exxon Mobil’s and the risk wouldn’t have decreased really. The same applies if I had

invested only in high tech stocks which carry a lot of risk but potentially very high returns.

Diversification is directly related with risk aversion. Investors are said to be risk averse

since given the opportunity to buy two assets that yield the same return, they will choose the

safest investment. This means that riskier assets must be priced at a lower value in order to

attract investors since the higher the potential return, the higher the risk, and the lower the price.

References

Mishkin, F. S., & Eakins, S. (2017). Financial Markets and Institutions (9th ed.). Pearson.

Yahoo Finance. (2021). Stock prices. https://finance.yahoo.com/quote/XOM/history?

period1=1472256000&period2=1632700800&interval=1mo&filter=history&frequency=

1mo&includeAdjustedClose=true