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6. 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
6. 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: Standard Investment Allocation Beta Deviation Stock Atteric Inc. (AI) 0.900 38.00% 35% 42.00% Arthur Trust Inc. (AT) 20% 1.400 Lobster Supply Corp. (Lsc) 15% 1.200 45.00% 49.00% Transfer Fuels Co. NTF) 30% 0.300 Gregory calculated the portfolio's beta as 0.865 and the portfolio's expected return as 12.49%. 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 Transfer Fuels Co. The risk-free rate is 6%, and the market risk premium is 7.50%. According to Gregory's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? 1.23 percentage points O O 1.58 percentage points O 1.82 percentage points O 1.96 percentage points
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