6. Portfolio beta and weights

Rafael 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:

Shock Invesh'nentAlloca'Hon Beta Standard Deviatlon Atteric Inc. (A1) 35% 0.600 53.00% Arthur Trust Inc. (AT) 20% 1.400 57.00% Li Corp. (LC) 15% 1.200 50.00% Baque Co. (ac) 30% 0.400 54.00% Rafael calculated the portfolio's beta as 0.?90 and the portfolio's required return as 11.925050. Rafael 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 6%, and the market risk premium is 150%. According to Rafael's recommendation, assuming that the market is in equilibrium, how much will the po rtfolio's required return change? (Note: Do not round 1.rour intermediate calculations.) 0 0.6510 percentage points 0 0.5250 percentage points 0 0.6038 percentage points 0 0.4095 percentage points 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, Rafael expects a return of 12.90% from the portfolio with the new weights. Does he think that the required return as compared to expected returns is undervalued, overvalued, or fairly' valued? O Undervalued 0 Fa irlviir valued 0 Que rvalued m decrease Suppose instead of replacing Atteric Inc.'s stock with Baque Co.'s stock, Rafael considers replacing AttJeric Inc .'s shock with the equal - - on to shares of Company X's stock that has a higher beta than Atteric Inc. If everything else remains constant, the portfolio's beta would V