Assignment:
Instructions:
In addition to the thread, you are required to reply to 2 other classmates' threads. Each reply
Must be 450-600 words and include 2 peer-reviewed references and one biblical integration.
Munsun
1. Money market instruments
When $1 in a savings account earns interest that is less than the inflation rate, it is safe to say that $1 is losing purchasing power and is now worth less than $1. In the Bible, the servant who was entrusted with one talent was like putting money in a bank without even receiving the smallest interest. The master reprimanded him for being a lazy servant for not even getting usury. He was neglectful of his duty as a steward of the master's assets, while the other two servants actively worked and invested their entrusted funds to build wealth for the master. The same can be said of fund managers who are entrusted to be stewards of clients' assets. There are a couple of different ways to build wealth, and one good way is to invest in money markets that are more approachable for individual investors. It is a market for short-term investments in which individual investors can easily invest their money to earn returns instead of letting it sit in a savings account with low interest. It is not totally risk-free; however, these instruments can be attractive options for individual investors who are willing to accept lower yields in exchange for safer investment options (Bodie, Kane, & Marcus, 2024, p. 31).
Treasury bills are the most marketable option that individual investors can buy from the U.S. government, and their annual yield averaged approximately 4.07% per quarter in 2025 (YCharts, 2025), which was higher than the Consumer Price Index (CPI) of 2.7% and slightly higher than the interest rate range of 3.7%-4.0% (Federal Reserve Bank of St. Louis, 2025). Need Assignment Help?
2. Fixed income/bond instruments
Fixed income is a longer-term investment that generates steady income through interest or coupon payments, with principal paid back at maturity, such as Treasury notes, bonds, municipal bonds, mortgage securities, and government debt (Bodie, Kane, & Marcus, 2024, p. 37). The risk can be higher than money market instruments, depending on the term and issuer. For example, Treasury notes and bonds issued by the government are considered to have lower default risk than high-yield junk bonds or notes issued by corporations. Consistent with the "no free lunch" principle, Treasury yields of 3.48% for 1 year, 3.79% for 5 years, and 4.85% for 30 years (Federal Reserve Bank of St. Louis, 2025) reflect the trade-off between risk and return. Longer-term securities generate higher returns and higher risk, while shorter-term instruments offer lower risk and lower return.
3. Equity investments
Equity securities, such as common or preferred equity, are stock investments many investors purchase to seek profit from dividend payments or capital gains from buying and selling shares. Common equity offers ownership, voting rights, and high liquidity due to the convenience of buying and selling shares. However, it has disadvantages, including no guaranteed dividend payments and a residual claim on assets and income, meaning shareholders are the last in priority during liquidation due to limited liability (Bodie, Kane, & Marcus, 2024, p. 44).
Preferred stock guarantees fixed income like a bond, and individual investors can purchase it for fixed income with lower risk and priority on assets in case of liquidation. While equity investments offer better returns, they are riskier options due to gains and losses in stock value, inflation, and interest rates that can affect firms' profits.
4. Mutual funds
A mutual fund consists of a group of fund managers who work with a pool of investors to achieve greater purchasing and negotiating power, allowing investors to seek good investments without bearing the burden of research or the administrative process of acquiring securities, with the goal of maximizing returns through a diversified portfolio of securities such as money market instruments, stocks, and bonds (Bodie, Kane, & Marcus, 2024, p. 109). Transactions of shares happen daily to adjust the risk and return of the portfolio. Open-end fund transactions occur at the end of the day after the computation of net asset value (NAV), the market value of each share in the portfolio (Fidelity, n.d.). Another form of mutual fund is the exchange-traded fund (ETF), which can be traded throughout the day and may sell at a premium or discount, to its net asset value (Bodie, Kane, & Marcus, 2024, p. 109).
5. Derivative/option investments relative to the scripture
A derivative is a tool that changes its value in response to changes in factors such as interest rates, security prices, commodities, and indexes (Chorafas, 2008). It functions like a safety device to help avoid deviation from standard performance, a mechanism a faithful steward should actively practice when assets are entrusted. Options can include margin calls for upper and lower limits and short sales to gain profit from the decline of share prices. The servants who were entrusted with five and two talents practiced derivatives and options with the given assets and made 100% profits from what was entrusted to them. The servant with one talent did not practice due diligence with what was given to him. He hid it because he did not want to take a risk or perform his duty; therefore, what was given lost its value and did not even earn usury.
Risk mitigation, avoidance, and return strategies
The optimal mix of investment assets a portfolio manager can choose lies on the efficient frontier line of the graph. The efficient frontier shows the point at which an investment can have the highest expected rate of return for the lowest possible risk, or the lowest possible risk for a given expected return (Bodie, Kane, & Marcus, 2024, p. 168). It is a good tool a portfolio manager should use for risk mitigation and tolerance for investments. For each of the five types of investment, a good mix of stocks, bonds, and risk-free securities such as Treasury bills is a good way to achieve an optimal investment portfolio ratio.
Reference:
Bloomberg. (n.d.). United States rates & bonds - government bonds. Retrieved [Month Day, Year]
Board of Governors of the Federal Reserve System (US), Federal Funds Effective Rate [FEDFUNDS], retrieved from FRED, Federal Reserve Bank of St. Louis;
Bodie, Z., Kane, A., & Marcus, A. J. (2024). Essentials of investments (13th ed.). McGraw-Hill Education. ISBN 9781266885389
Chorafas, D. N., &NetLibrary, I. (2008). Introduction to derivative financial instruments : options, futures, forwards, swaps, and hedging. McGraw-Hill.
Fidelity. (n.d.). What is net asset value (NAV)? Fidelity Investments. Retrieved [Month Day, Year].
The annual yield on 3-month U.S. Treasury bills for 2025 was approximately 4.07 %." (Source: YCharts, based on Federal Reserve H.15 Selected Interest Rates data)
Aaron
Money Market Instruments
Inherent within the parable of the Parable of the Talents (Matthew 25:14-30), there can be found an underlying construct relevant to the usage of money market instruments. The primary usage of money market instruments is to secure capital and earn interest. These instruments are mainly used for a short period (Kumar & Sahaja, 2024).
One underlying similarity between these instruments and the indicated scripture is the theme of risk vs. stagnation. The interest rates available through money market accounts are considerably higher than traditional savings accounts, thereby offering a healthier return on principle.
Fixed Income/Bond Instruments
The rebuke of the master presented within the Biblical Parable of the Talents holds a keen explanation as to why capital should never remain idle. And while we may be tempted to simply view such passages in terms of monetary possession, this comparison may hold a myriad of meanings. For example, the product of one's hard-earned labor, or a developed gift or skill, should be put to an appropriate and spiritual use.
By investing in bonds, one may find a steady and assured rate of growth that preserves the principle capitol. Under such conditions of assurance, the investor will find the necessary time of reflection to determine the appropriate end use of their wealth.
Equity Investments
Within the parable, we see the wisdom and outcome of the two servants who risked capital to generate a significant return. Their actions stand in stark contrast to the less mindful servant who "went and dug in the ground, and hid his lord's money"(The Orthodox Study Bible, 2008, Matthew 25:18).
By having both the courage and foresight to invest in equity investments, investors purchase fractional ownership within a company. Thereby, investors are entitled to future earnings and returns. Equity investments come in various forms, including common stock, preferred stock, equity funds, and private equity.
Mutual Funds
Mutual funds work on the principle of pooled capital, which is to say that investors place their investments within a common pool. This pool can be a portfolio stocked with a variety of funds. These assets vary based on the desired objective. As in the Parable of the Talents, the master tasked the different servants based on their different abilities. Ina similar manner, each stock offers a different facet of return and growth potential.
Derivative/Option Investments
The primary basis of derivatives can be seen as a financial instrument that derives its anticipated return from some underlying asset. The asset in question might be an instrument such as a stock, bond, or commodity. Derivatives may also be available in other formats, such as swaps and forwards. Such tools add value to portfolios by allowing investors to navigate the market's complex fluctuations (Meria et al., 2023). In much the same way as in the Parable, each of these returns operates on an individualized capacity, much like the divergent approaches of the servants.
Risk Mitigation, Avoidance, and Risk Tolerance
Different investment strategies have particular and nuanced approaches concerning the manner in which they deal with the tensions between return and risk and risk avoidance. The strategies apply differently across the different asset classes and categorizations.
Money market accounts prioritize risk management. These accounts offer a steady yet modest return. These returns are based on asset liquidity and capital preservation. Their main strategy is to nullify the effects of inflation.
Fixed income and bond instruments manage risk complexities through such strategies as contractual yields. Such mitigation techniques provide a steady flow of interest payments. However, considering that these instruments yield asymmetric payoffs, risk management is heavily focused on avoiding "losers" as much as selecting winners.
Equity investments have a higher necessary tolerance of overall risk. Within this strategy, investors are openly exposed to market volatility with often no guarantee of substantial return. One of the primary mechanisms for risk management in regard to equity investments is diversification and asset allocation. This means that the invested capital is diversified across different sectors such as healthcare, technology, and automotive companies.
Mutual funds avoid risk by making use of such platforms as professional oversight and automated rebalancing. Within these fund categories, capital is invested across a myriad of different securities, thereby curtailing "idiosyncratic risk". This means it is less likely that any one failure will significantly damage the capital returns.
Options and derivatives make extensive use of hedging strategies. This means they make use of positions that can offset potential losses in the face of market fluctuations.
References:
Kumar, P. N., & Sahaja, B. (2024). a study on awareness of mutual funds among financial advisors. International Journal of Management Research and Reviews, 14(4), 349-361.
Meira, E., Cunha, Felipe Arias Fogliano de Souza, Orsato, R. J., Miralles-Quirós, M. M., & Miralles-Quirós, J. L. (2023). The added value and differentiation among ESG investment strategies in stock markets. Business Strategy and the Environment, 32(4), 1816-1834.
St. Athanasius Orthodox Academy. (2008). The orthodox study bible. Thomas Nelson.