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.C.ll|E|:l Hng.cengage.com Cl lOHFT'IHjl a]: CENGAGE l MINDTAP Q Search this course Assignment 08 - Risk and Rates of Return Gregory is an analyst at a wealth management rm. One of his clients holds a $5,000 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: Investment Sta ndard Stock Allocation Deviation Atteric Inc. (AI) 35% 38.00% Arthur Trust Inc. (AT) 20% 42.00% Lobster Supply Corp. (LSC) 15% 45.00% Baque Co. (BC) 30% 49.00% Gregory calculated the portfolio's beta as 0.745 and the portfolio's expected return as 11.59%. Gregory 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%, and the market risk premium is 7.50%. According to Gregory's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? 0 0.79 percentage points 0 0.91 percentage points 0 0.62 percentage points 0 0.98 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 analysis interpret data in different ways. Suppose, based on the earnings consensus of stock analysis, Gregory expects a return of 12.30% from the portfolio with the new weighls. Does he think that the revised portfolio, based on the changes he recommended, is undervalued, overvalued, or fairly valued? O Overvalued O Fairly valued O Undervalued Suppose instead of replacing Atteric Inc.'s stock with Baque Co.'s stock, Gregory 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 required return from the portfolio would