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Drop downs: 1. 0.79 0.98 0.62 0.91 next two are increase or decrease Nick is an analyst at a wealth management firm. One of his
Drop downs:
1.
0.79
0.98
0.62
0.91
next two are increase or decrease
Nick is an analyst at a wealth management firm. One of his clients holds a $10,000 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 Stock Investment Allocation Beta Standard Deviationn Atteric Inc. (AI) 35% 0.600 0.23% 20% 1.600 0.27% Arthur Trust Inc(AT) Lobster Supply Corp. (LSC) Baque Co. (BC) 15% 1.100 0.30% 30% 0.300 0.34% Nick calculated the portfolio's beta as 0.785 and the portfolio's expected return as 11.89% Nick thinks it wil 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 6.0096, and the market risk premium is 7.50% According to Nick'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, Nick expects a return of 11.09% 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 O Undervalued O Fairly valued Suppose instead of replacing Atteric Inc.'s stock with Baque Co.'s stock, Nick considers replacing Atteric Inc.'s stock with the equal dollar allocation to shares of Company Xs stock that has a higher beta than Atteric Inc. If everything else remains constant, the portfolio's beta would and the required return from the portfolio would
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