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Brandon 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
Brandon 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: Investment Allocation Standard Deviation Stock Beta 35% 0.600 38.00% 20% 1.500 42.00% Atteric Inc. (AI) Arthur Trust Inc. (AT) Lobster Supply Corp. (LSC) Baque Co. (BC) 15% 1.200 45.00% 30% 0.500 49.00% Brandon calculated the portfolio's beta as 0.840 and the portfolio's expected return as 8.62%. Brandon 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 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? O 0.22 percentage points 0.19 percentage points 0.24 percentage points O 0.15 percentage points
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