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5. Portfolio beta and weights Aa Aa Brandon is an analyst at a wealth management firm. One of his clients holds a $7,500 portfolio that
5. Portfolio beta and weights Aa Aa Brandon 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 Investment Allocation 35% 20% 15% 30% Standard Deviation 23.00% 27.00% 30.00% 34.00% Stock Atteric Inc. (AI) Arthur Trust Inc. (AT) Lobster Supply Corp. (LSC) Baque Co. (BC) Beta 0.600 1.400 1.100 0.300 Brandon calculated the portfolio's beta as 0.745 and the portfolio's expected return as 8.10% Brandon 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 Brandon's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? O 0.72 percentage points O 0.67 percentage points O 0.45 percentage points O 0.58 percentage points
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