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Chapter 8 Assignment e Back to Assignment Attempts: 12. Portfolio beta and weights Kyoko is an analyst at a wealth management firm. One of her
Chapter 8 Assignment e Back to Assignment Attempts: 12. Portfolio beta and weights Kyoko is an analyst at a wealth management firm. One of her dients holds a $10,000 portfolio that consists of four stocks. The investment allocation Average:13 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% 0.900 0.23% 20% 1.600 0.27% Arthur Trust Inc(AT) Li Corp. (LC) 1.300 0.300 15% 0.30% nsfer Fuels Co. (TF) 30% 0.34% Kyoko calculated the portfolio's beta as 0.920 and the portfolio's expected return as 9.06%. Kyoko 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 4.00%, and the market risk premium is 5.50% According to Kyoko'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
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