10. Portfolio risk and return Aa Aa Anusha holds a $5,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table: Stock Standard Deviation Investment Beta Omni Consumer Products Co. (OCP) $1,750 0.80 9.00% Kulatsu Motors Co. (KMC) $1,000 1.30 11.00% Western Gas & Electric Co. (WGC) $750 1.10 16.00% Flit com Corp. (FC) $1,500 0.30 19 50% Suppose all stocks in Anusha's portfolio were equally Suppose all stocks in the portfolio were equally weighted. weighted. Which of these stocks would contribute the Which of these stocks would have the least amount of least market risk to the portfolio? standalone risk? O Flit com Corp. Flitcom Corp. Omni Consumer Products Co. O Kulatsu Motors Co O Western Gas & Electric Co O Western Gas & Electric Co omni Consumer Products Co O Kulatsu Motors Co If the risk free rate is 4% and the market risk premium is 6%, what is Anusha's portfolio's beta and required return? n the following table: Required Return Beta Anusha's portfolio 11. Portfolio beta and weights Gregory is an analyst at a wealth management firm. One of his clients holds a $7.500 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 Allocation Beta Deviation Atteric Inc. (AI) 35% 0.750 23.00% Arthur Trust Inc. (AT) 20% 1.500 27.00% Lobster Supply Corp. CLSC 15% 1.200 30.00% Banque Co. (BC) 30% 0.500 34.00% Gregory calculated the portfolio's beta as 0.893 and the portfolio's expected return as 12.70%. Gregory thinks it will be a good idea to reallocate the funds in his client's portfolio. He recommends replacing Atterk c.'s shares with the same amount in additional shares of Baque Co. The risk-free mate is 6%, and the rket risk premium is 7.50% According to Gregory's recommendation, assuming that the market is in equilibri how much will the portfolio required return change? 0.66 perce age points O 0.76 percentage points o 0.82 ntage points O 0.52 percentage points Analysts' estimates on expected returns from equity investments are based on several factors. These estimations also often include sulbjective and judgmental factors, because different analysts interpret data in different ways. Suppose, based on the earnings consensus of stock analysts, Gregory expects a return of 13.S4% 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 Overvalued O Undervalued Suppose instead of replacing Atteric Inc.'s stock with Baque Co.'s stock, Gregory 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 and the required return from the everything else remains constant, the portfolio's beta would
