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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
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: Stock Investment Allocation Beta Standard Deviation Atteric Inc. (AI) 35% 0.600 38.00% Arthur Trust Inc.(AT) 20% 1.500 42.00% LI Corp. (LC) 15% 1.100 45.00% Transfer Fuels Co. (TF) 30% 0.500 49.00% Rafael calculated the portfolio's beta as 0.825 and the portfolio's expected return as 12.19%. 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 Transfer Fuels Co. The risk-free rate is 6%, and the market risk premium is 7.50%. According to Rafael's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? 0.26 percentage points O 0.32 percentage points O 0.30 percentage points 0.20 percentage points
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