Ch 08: Assignment - Risk and Rates of Return 9. Portfolio beta and weights 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 Beta Standard Deviation 38.00% 35% 0.750 Stock Atteric Inc. (AI) Arthur Trust Inc. (AT) u Corp. (LC) Transfer Fuels Co. (TF) 20% 1.600 42.00W 45.00% 15% 1.100 30W 0.300 49.009 Brandon calculated the portfolio's beta as 0.630 and the portfolio's required return as 8.6090 Brandon thinks it will be a good idea to reallocate the funds in his client's portfolio. He recommends replacing Atterie Ine'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? (Note: Do Ch 08: Assignment - Risk and Rates of Return 0 x According to Brandon's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? (Note: Do not round your intermediate calculations.) 0.8690 percentage points O 1.0776 percentage points O 0.6778 percentage points O 0.9994 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, Brandon expects a return of 6.24% from the portfolio with the new weights. Does he think that the required return as compared to expected returns is undervalued, overvalued, or fairty valued? O Undervalued O Fairly valued Overvalued 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, Brandon expects a return of 6.24% 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? Undervalued Fairly valued Overvalued Suppose instead of replacing Atteric Inc.'s stock with Transfer Fuels Co.'s stock, Brandon considers replacing Atterie 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 Grade it Now Save & Continue Continue without saving