Diversified Risk Stock Patfolio
For this case study. you will create a portfolio of five to eight stocks that demonstrate diversified risk. List 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. • Flow does nsk aversion affect a stock’s required rate of return? • Explain the distinction between a stock’s pnce and its intrinsic value.
Sample solution
Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell.
In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.
God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.
Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.
To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.
References
Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.
Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.
Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.
Sample Answer
Sample Answer
Diversified Risk Stock Portfolio Case Study
Selected Stocks for the Portfolio
Here is a diversified stock portfolio consisting of eight stocks from various sectors to demonstrate diversified risk. The current prices and historical returns are as follows:
Stock Symbol Company Name Current Price 1-Year Return (%) 5-Year Return (%)
AAPL Apple Inc. $175.50 25.40 123.00
JNJ Johnson & Johnson $165.00 4.80 28.50
XOM Exxon Mobil Corp. $110.00 32.00 56.70
MSFT Microsoft Corp. $335.00 30.10 109.50
DIS The Walt Disney Co. $115.00 -2.50 15.60
VZ Verizon Communications Inc. $38.00 -9.00 -5.30
GOOGL Alphabet Inc. $140.00 14.70 65.40
PFE Pfizer Inc. $46.50 -12.80 45.20
Explanation of Key Concepts
Portfolio Risk vs. Stand-Alone Risk
– Stand-Alone Risk refers to the risk associated with holding a single investment in isolation, often measured by its volatility or standard deviation of returns.
– Portfolio Risk, on the other hand, considers the combined risk of multiple investments within a portfolio. This risk can be lower than individual stock risks due to diversification, where negative performance in one stock may be offset by positive performance in another.
Rationale for Stock Selection
1. Apple Inc. (AAPL): A leader in technology with strong brand loyalty and consistent growth in revenue and earnings.
2. Johnson & Johnson (JNJ): A diversified healthcare company, providing stability and dividends even during economic downturns.
3. Exxon Mobil Corp. (XOM): A major player in the energy sector, benefiting from global demand for oil and gas.
4. Microsoft Corp. (MSFT): A robust tech firm with a strong cloud computing division that contributes to significant revenue growth.
5. The Walt Disney Co. (DIS): A leader in entertainment and media with a diverse portfolio of assets, including theme parks and streaming services.
6. Verizon Communications Inc. (VZ): Provides stable income through dividends, benefiting from the growing demand for telecommunications.
7. Alphabet Inc. (GOOGL): A dominant player in online advertising and technology, with consistent revenue streams from various platforms.
8. Pfizer Inc. (PFE): A pharmaceutical company with a strong pipeline of drugs and vaccines, providing growth potential.
By including a mix of sectors (technology, healthcare, energy, telecommunications, and consumer goods), this portfolio reduces the overall risk compared to investing in just one stock, as it mitigates the impact of market volatility specific to any single sector.
Impact of Risk Aversion on Required Rate of Return
Risk aversion affects an investor’s required rate of return by influencing their preference for riskier versus safer investments. Generally, more risk-averse investors will require a higher expected return to compensate for taking on additional risk, leading to a higher required rate of return for stocks perceived as riskier.
Conversely, investors who are less risk-averse may accept lower returns in exchange for holding more stable or established companies, thus affecting their investment choices and portfolio allocation.
Distinction Between Stock Price and Intrinsic Value
– Stock Price refers to the current market price at which a stock is trading on an exchange.
– Intrinsic Value, however, is an estimate of the true underlying value of a stock based on fundamental analysis, including factors such as earnings, dividends, growth potential, and economic conditions.
A stock may be trading at a price above or below its intrinsic value due to market sentiment, speculation, or external economic factors. Understanding this distinction helps investors identify potential investment opportunities when a stock is undervalued or overvalued relative to its intrinsic worth.
Conclusion
This diversified stock portfolio illustrates the importance of spreading investments across various sectors to manage risk effectively. By understanding key financial concepts such as portfolio risk, stand-alone risk, risk aversion, and the difference between stock price and intrinsic value, investors can make informed decisions that align with their financial goals and risk tolerance levels.
