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Any help would be appreciated - thanks! Brandon is an analyst at a wealth management firm. One of his clients holds a $5,000 portfolio that
Any help would be appreciated - thanks!
Brandon is an analyst at a wealth management firm. One of his clients holds a $5,000 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: Investment Standard Stock Allocation Beta Deviation Atteric Inc. (AI) 35% 0.600 23.00% Arthur Trust Inc. (AT) 20% 1.500 27.00% Li Corp. (LC) 1.100 15% 30.00% Transfer Fuels Co.(TF) 30% 0.500 34.00% Brandon calculated the portfolio's beta as 0.825 and the portfolio's expected return as 8.54% . Brandon thinks it wll 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 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? 0.19 percentage points 0.22 percentage points 0.24 percentage points 0.15 percentage points Analysts' estimates on expected returns from equity investments are based on several factors. These estimations also often include su bjective and judgmental factors, because different analysts interpret data in different ways. Suppose, based on the earnings consensus of stock analysts, Brandon expects a return of 9.85% 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? O Undervalued Overvalued Fairly valued Suppose instead of replacing Atteric Inc.'s stock with Transfer Fuels Co.'s stock, Brandon 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 required return from the portfolio wouldStep by Step Solution
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