Stock	Investment Allocation	Beta	Standard Deviation
Atteric Inc. (AI)	35%	0.600	23.00%
Arthur Trust Inc. (AT)	20%	1.500	27.00%
Lobster Supply Corp. (LSC)	15%	1.100	30.00%
Baque Co. (BC)	30%	0.500	34.00%

Gregory calculated the portfolios beta as 0.8250 and the portfolios expected return as 8.54%.

Gregory thinks it will be a good idea to reallocate the funds in his clients portfolio. He recommends replacing Atteric Inc.s shares with the same amount in additional shares of Baque Co. The risk-free rate is 4%, and the market risk premium is 5.50%.

According to Gregorys recommendation, assuming that the market is in equilibrium, how much will the portfolios required return change? (Note: Round your intermediate calculations to two decimal places.)

0.24 percentage points

0.15 percentage points

0.22 percentage points

0.19 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, Gregory expects a return of 6.85% 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

Fairly valued

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 Xs stock that has a higher beta than Atteric Inc. If everything else remains constant, the portfolios beta would , and the required return from the portfolio would .