Answered step by step
Verified Expert Solution
Question
1 Approved Answer
12. Portfoliobeta and weights Kevin is an analyst at a wealth management firm. One of his clients holds a $7,500 portfolio that consists of four
12. Portfoliobeta and weights Kevin 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 Atteric Inc. Arthur Inc. Li Corp. Transfer Fuels Co. 0.91% 0.98% Investment Allocation 0.62% 35% 20% 15% 30% Kevin calculated the portfolio's beta as 0.862 and the portfolio's expected return as 10.60%. Kevin 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 Transfer Fuels Co. The risk-free rate is 5.00%, and the market risk premium is 6.50%. O 0.79% Beta Standard Deviation 0.750 1.500 1.200 According to Kevin's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? 0.400 0.38% 0.42% 0.45% 0.49%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started