1st drop down options: 0.74%, 0.58%, 0.85%, 0.92%

2nd drop down options: increase or decrease

10. Portfolio beta and weights Lorenzo is an analyst at a wealth management firm. One of his clients holds a $10,000 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: TIT Stock Investment Allocation Standard Deviation Beta Atteric Inc. (AI) 35% 0.900 0.23% Arthur Trust Inc. (AT) 0.27% 20% 1.500 Lobster Supply Corp. (LSC) 1.200 15% 0.30% Transfer Fuels Co. (TF) 0.34% 30% 0.500 Lorenzo calculated the portfolio's beta as 0.945 and the portfolio's expected return as 9.20%. Lorenzo 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 4.00%, and the market risk premium is 5.50%. According to Lorenzo's recommendation, assuming that the market is in equilibrium, the portfolio's required return will change by 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, Lorenzo expects a return of 8.48% 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, based on the earnings consensus of stock analysts, Lorenzo expects a return of 8.48% 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? Fairly valued Undervalued Overvalued Suppose instead of replacing Atteric Inc.'s stock with Transfer Fuels Co.'s stock, Lorenzo 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 required return from the portfolio would