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12. Portfolio beta and weights Dmitri 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: HETIT Stock Investment Allocation Standard Deviation Beta Atteric Inc. (AI) 0.900 35% 0.23% 20% 1.600 0.27% Arthur Trust Inc(AT) 0.30% Lobster Supply Corp. (LSC) 15% 1.100 30% 0.300 0.34% aque Co. (BC) Dmitri calculated the portfolio's beta as 0.890 and the portfolio's expected return as 12.68%. Dmitri 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 Baque Co. The risk-free rate is 6.00%, and the market risk premium is 7.50% According to Dmitri'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. 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, Dmitri expects a return of 11.12% 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 Baque Co.'s stock, Dmitri 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 risk would