Keith holds a portfolio that is invested equally in three stocks ( wD=wA=wI=1/3). Each stock is described in the following table: An analyst has used market- and firm-specific information to make expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns. The risk-free rate [rRF] is 6%, and the market risk premium [RP PM] is 4%. Use the following graph with the security market line (SML) to plot each stock's beta and expected return. Tool tip: Mouse over the points in the graph to see their coordinates. An analyst has used market- and firm-specific information to make expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns. The risk-free rate [rRF] is 6%, and the market risk premium [RPM ] is 4%. Use the following graph with the security market line (SML) to plot each stock's beta and expected return. Tool tip: Mouse over the points in the graph to see their coordinates. A stock is in equilibrium if its required return its expected return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst's expected return estimates, stock INO is , stock AIL is in equilibrium, and stock DET is Brandon 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: Brandon calculated the portfolio's beta as 0.8775 and the portfolio's expected return as 8.83%. 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 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: Round your intermediate calculations to two decimal places.) 0.48 percentage points 0.55 percentage points 0.37 percentage points 0.60 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 9.85% 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? Overvalued Undervalued Fairly valued Suppose instead of replacing Atteric Inc.'s stock with Transfer Fuels Co.'s stock, Brandon considers replacing Atteric 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 , and the required return from the portfolio would