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Rafael is an analyst at a wealth management firm. One of his clients holds a $5,000 portfolio that consists of four stocks. The investment in
Rafael is an analyst at a wealth management firm. One of his clients holds a $5,000 portfolio that consists of four stocks. The investment in the portfolio along with the contribution of risk from each stock is given in the following table: Rafael calculated the portfolio's beta as 0.833 and the portfolio's expected return as 12.25% Rafael 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 6%, and the market risk premium is 7.50% According to Rafael's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? 1.19 percentage points 1.37 percentage points 0.93 percentage points 1.48 percentage points Analysts' estimates on expected returns from equity investments are based on several factors. These estimations
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