1) Rafeal is an analyst at a wealth management firm. One of his clients holds a $5000 portfolio that consist of four stocks. The investment allocation in the portfolio along with the contribustion of risk from each stock is given in the following table:

stock	Investment	Beta	Standard Deviation
Atteric Inc (AI)	35%	0.600	38.00%
Atteric Trust (AT)	20%	1.400	42.00%
Lobster	15%	1.200	45.00%
Baque Co	30%	0.500	49.00%

Rafeal calculated the portfolios beta as 0.820 and the portfolios expected return as 12.15%.

Rafeal thinks it will be a good idea to reallocate the funds in his clients portfolio. He recommends replacing Atteric Incs share with the same amount in additional shares of Baque Co. The risk-free rate is 6%, and the market risk premium is 7.50%. According to Rafeals recommendation, assuming that the market is in equilibrium, how much will the portfolios required return change? 0.26, 0.30, 0.20, or 0.32 ?

Suppose, based on the earnings consensus of stock analysts, Rafeal expects a return of 10.39% 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? Suppose instead of replacing Atteric Incs Stock with Baque Cos stock, Rafeal considers replacing Atteric Incs stock with the equal dollar allocation to shares of company Xs stock that has a higher beta than Atteric Inc. If everything else remains constant, the required return from the portfolio would (Increase or Decrease)

Rafeal is an analyst at a wealth management firm. One of his clients holds a $5000 portfolio that consist of four stocks. The investment allocation in the portfolio along with the contribustion of risk from each stock is given in the following table:

Stock	Investment	Beta	Standard deviation
Atteric Inc (AI)	35%	0.600	38.00%
Arthur Trust (AT)	20%	1.400	42.00%$
Lobster Supply Corp	15%	1.200	45.00%
Baque Co	30%	0.500	49.00%

Rafeal calculated the portfolios beta as 0.820 and the portfolios expected return as 12.15%.

Rafeal thinks it will be a good idea to reallocate the funds in his clients portfolio. He recommends replacing Atteric Incs share with the same amount in additional shares of Baque Co. The risk-free rate is 6%, and the market risk premium is 7.50%

According to Rafeals recommendation, assuming that the market is in equilibrium, how much will the portfolios required return change? 0.26, 0.30, 0.20, or 0.32 ?

Suppose, based on the earnings consensus of stock analysts, Rafeal expects a return of 10.39% 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?

Suppose instead of replacing Atteric Incs Stock with Baque Cos stock, Rafeal considers replacing Atteric Incs stock with the equal dollar allocation to shares of company Xs stock that has a higher beta than Atteric Inc. If everything else remains constant, the required return from the portfolio would? Increase or Decrease ?

2).

Wilson holds a portfolio that invest equally in three stocks (W_A=W_B=W_C= 1/3). Each stock is described in the following table:

Stock	Beta	Standard deviation	Expected return
A	0.5	23%	7.5%
B	1.0	38%	12.0%
C	2.0	45%	14.0%

The risk-free [r_RF] is 4% and the market risk premium [RP_M] is 5%. Use the security market line (SML) to plot each stocks beta and expected return on the graphy

A stock is in equilibrium if its expected return is ______ (is less than or is more than or equals ) its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stocks prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst;s expected return estimates, Stock A is _________ (undervalued or in equilibrium or overvalued)?, Stock B is ___________(undervalued or in equilibrium or overvalued)?, and stock C is in equilibrium and fairly valued.

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2). Wilson holds a portfolio that invest equally in three stocks (WA=WB=WC= 1/3). Each stock is described in the following table: Stock Beta Standard deviation Expected return A 0.5 23% 7.5% B 1.0 38% 12.0% C 2.0 45% 14.0% The risk-free [rRF] is 4% and the market risk premium [RPM] is 5%. Use the security market line (SML) to plot each stocks beta and expected return on the graphy A stock is in equilibrium if its expected return is ______ (is less than or is more than or equals ) its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stocks prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst;s expected return estimates, Stock A is _________ (undervalued or in equilibrium or overvalued)?, Stock B is ___________(undervalued or in equilibrium or overvalued)?, and stock C is in equilibrium and fairly valued.