Answered step by step
Verified Expert Solution
Question
1 Approved Answer
drop down option is 0.73% 1.15% 1.07% and 0.93% decrease or increase 12. Portfolio beta and weights Raphael is an analyst at a wealth management
drop down option is 0.73% 1.15% 1.07% and 0.93% decrease or increase 12. Portfolio beta and weights Raphael 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: Stock Beta Standard Deviation Investment Allocation 35% Atteric Inc. (AL) 0.900 0.38% 20% 1.400 0.42% Arthur Trust Inc(AT) Lobster Supply Corp. (LSC) Baque Co. (BC) 1.300 0.45% 15% 30% 0.400 0.49% Raphael calculated the portfolio's beta as 0.910 and the portfolio's expected return as 9.00%. Raphael thinks it will be a good idea to reallocate the funds in his diant's portfolio. He recommends replacing Atteric Inc. shares with the same amount in additional shares of Baque Co. The risk free rate is 4.00%), and the market risk premium 5.50% According to Raphael's recommendation, assuming that the market is in equlibrium, the portfolio's required retum will change by Analysts' estimates on expected return from equity investments are based on several factors. These estimations to often include subjective and judgmental factors, because different analysts interpret data in different ways. Suppose, based on the earnings consemn of stock analysts, Raphael expects a return of 8.09% from the portfolio with the new weights Does he think that the revused portfolio, based on the changes he recommended, is undervalued, overvalued, or fainty valund? Overvalued Undervalued Raphael calculated the portfolio's beta as 0.910 and the portfolio's expected return as 9.00% Raphael thinks it will be a good idea to reallocate the funds in his dient's portfolio. He recommends replacing Atteric Inc.'s shares with the same amount in additional shares of Baque Co. The risk-free rate is 4.00%, and the market risk premium is 5.50% According to Raphael'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, Raphael expects a return of 8.09% 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 Overvalued Undervalued Fairly valued Suppose instead of replacing Atteric Inc.'s stock with Baque Costock, Raphael considers replacing Atterie Ine.stock with the equal dollar allocation to shares of Company X's stock that has a higher beta than Atterie Inc. If everything else remains constant, the required return from the portfolio would
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started