Sack to Assignment Attempts 2 Keep the Highest 2/3 1. Portfolio beta and weights Gregory is an analyst at a wealth management fem. One of his clients holds a $10,000 portfolio that consists of four stocks. The investment location in the portfolio along with the contribution of risk from each stock in given in the following table Stock Investment Allocation Beta Standard Deviation Atteric Inc. (AI) 35% 0.750 38.00% Arthur Trust Inc. (AT) 20 1.400 42.000 Lobster Supply Corp. (USC) 15 1.300 45.00 Baque Co. (BC) 30% 0.500 49.00% Gregory Calculated the portfolio's beta 0.588 and the portfolios required return as 12.0600%. Gregory thinks it will be a good idea to reallocate the funds in his client's portfolio He recommends replacing Attene Inc.'s shares with the same amount in additional shares of Bague Co. The risk-free rute is 6%, and the market risk premium is 7.50 According to Gregory's recommendation, assuming that the market in in equilibrium, how much will the portfolios required return change? (Note: Do not round your intermediate calculations.) 0.8184 percentage points 0.6600 percentage points O 0.7590 percentage points 0.5148 percentage points Analysts estimates on expected returns from equity investments are based on several factors. These estimations also often indude subjective and judgmental factors, because hentats interpret data in different ways. Suppose, based on the earings consensus of stock analysts, Gregory expects a return of 10.50 from the portfolio with the new weights Does he think that the required return as compared to expected return is undervalued, overvalued, or fairly valued? Undervalued Fairty valued Overvalued Suppose instead of replacing Alteric Inc.'s stock with Bague Co.'s stock, Gregory considers replacing Atterie Inc.'s stock with the equal dollar location to shares of Company Xs stock that has a higher beta than Atterie Ine. 1everything else remains constant, the required return from the portfolio would Grade R Now Save & Continue Continue without saving O 0.5148 percentage points Analysts' estimates on expected returns from equity investments are based on judgmental factors, because different analysts interpret data in different ways. Suppose, based on the earnings consensus of stock analysts, Gregory expects think that the required return as compared to expected returns is undervalued O Undervalued Fairly valued Overvalued Increase Suppos f replacing Atteric Inc.'s stock with Baque Co.'s stock, Grego decrease to sha Jany X's stock that has a higher beta than Atteric Inc. If even would
