Question
2. Analysts' estimates on expected returns from equity investments are based on several factors. These estimations also often include subjective and judgmental factors, because different
2. 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 dat in different ways.
Suppose, based on the earnings consensus of stock analysts, gregory expects a return of 6.82% 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?
a. Undervalued b. Fairly valued c. Overvalued
3. Suppose instead of replacing Atteric Inc.'s stock with baque Co's stock, Gregory considers replacing Altteric 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 risk would decrease or increase
a. Decrease
b. Increase
6. Portfolio beta and weights Aa Aa Gregory is an analyst at a wealth management firm. One of his clients 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 Standard Investment Stock Allocation Deviation Beta Atteric Inc. (AI) 0.750 35% 23.00% 1.400 Arthur Trust Inc. (AT) 27.00% 20% Lobster Supply Corp. (LSC) 15% 1.200 30.00% Baque Co. (BC) 30% 0.500 34.00% Gregory calculated the portfolio's beta as 0.873 and the portfolio's expected return as 8.80% Gregory 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 Gregory's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? o 0.60 percentage points o 0.55 percentage points o 0.48 percentage points o 0.37 percentage points 6. Portfolio beta and weights Aa Aa Gregory is an analyst at a wealth management firm. One of his clients 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 Standard Investment Stock Allocation Deviation Beta Atteric Inc. (AI) 0.750 35% 23.00% 1.400 Arthur Trust Inc. (AT) 27.00% 20% Lobster Supply Corp. (LSC) 15% 1.200 30.00% Baque Co. (BC) 30% 0.500 34.00% Gregory calculated the portfolio's beta as 0.873 and the portfolio's expected return as 8.80% Gregory 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 Gregory's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? o 0.60 percentage points o 0.55 percentage points o 0.48 percentage points o 0.37 percentage pointsStep by Step Solution
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