According to Amys recommendation, assuming that the market is in equilibrium, the portfolios required return will change by

A.0.61%

B.0.53%

C.0.41%

D. 0.66

Suppose instead of replacing Atteric Inc.s stock with Transfer Fuels Co.s stock, Amy considers replacing Atteric Inc.s stock with the equal dollar allocation to shares of Company Xs stock that has a higher beta than Atteric Inc. If everything else remains constant, the portfolios beta would (Increase/ Decrease) , and the required return from the portfolio would (Increase/ Decrease)

5. Portfolio beta and weights Amy is an analyst at a wealth management firm. One of her clients holds a $10,000 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: Stock Investment Allocation 35% 20% Atteric Inc. (AI) Arthur Trust Inc. (AT) Lobster Supply Corp. (LSC) Transfer Fuels Co. (TF) Beta 0.600 1.400 1.200 0.400 Standard Deviation 0.38% 0.42% 0.45% 0.49% 15% 30% Amy calculated the portfolio's beta as 0.790 and the portfolio's expected return as 11.93%. Amy thinks it will be a good idea to reallocate the funds in her client's portfolio. She recommends replacing Atteric Inc.'s shares with the same amount in additional shares of Transfer Fuels Co. The risk-free rate is 6.00%, and the market risk premium is 7.50%. According to Amy's recommendation, assuming that the market is in equilibrium, the portfolio's required return will change by . 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, Amy expects a return of 11.39% 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? Overvalued Undervalued O Fairly valued Suppose instead of replacing Atteric Inc.'s stock with Transfer Fuels Co.'s stock, Amy considers replacing Atteric 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 beta would , and the required return from the portfolio would