Answer Happy

Rafael is an analyst at a wealth management firm. One of his dients holds a $5,000 portfolio that consists of four stocks. The investment allocation in the portfolio along with the contribution of risk from each stock is given in the following table: Stock Atteric Inc. (AI) Arthur Trust Inc. (AT) Li Corp. (LC) Baque Co. (BC) Investment Allocation 35% 20% 15% 30% Beta 0.750 1.400 1.300 0.400 Standard Deviation 23,00% 27.00% 30.00% 34.00% Rafael calculated the portfolio's beta as 0.8575 and the portfolio's expected return as 8.72% Rafael thinks it will be a good idea to reallocate the funds in his client's portfolio. He recommends replacing Atteric Inc.'s shares with the same amount in additional shares of Baque Co. The risk-free rate is 4%, and the market risk premium is 5.50% According to Rafael's recommendation, assuming that the market is in equilibrium, how much will the portfollo's required return change? (Note) Round your intermediate calculations to two decimal places.) E

According to Rafael's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? (Note: Round your intermediate calculations to two decimal places.) 0.84 percentage points 0.68 percentage points 0.53 percentage points 0.78 percentage points Analysts' estimates on expected returns from equity investments are based on several factors. These estimations also often include subjective and judgmental factors, because different analysts interpret data in different ways. Suppose, based on the earnings consensus of stock analysts, Rafael expects a return of 6.54% from the portfolio with the new weights. Does be think that the revised portfolio, based on the changes he recommended, is undervalued, overvalued, or fairly valued? O Fairly valued O Overvalued Undervalued orating to

Analysts' estimates on expected returns from equity investments are based on several factors. These estimations also often include subjective and judgmental factors, because different analysts interpret data in different ways. Suppose, based on the earnings consensus of stock analysts, Rafael expects a return of 6.54% from the portfolio with the new weights. Does he think that the revised portfolio, based on the changes he recommended, is undervalued, overvalued, or fairly valued? O Fairly valued O Overvalued O Undervalued Suppose instead of replacing Atteric Inc.'s stock with Baque Co.'s stock, Rafael considers replacing Atteric Inc.'s stock with the equal dollar allocation to shares of Company X's stock that has a higher beta than Atteric Inc. If everything else remains constant, the portfolio's beta would and the required return from the portfolio would