Suppose instead of replacing Atteric Inc.s stock with Transfer Fuels 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 required return from the portfolio would (INCREASE or DECREASE)

Gregory 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 n the portfolio along with the contribution of risk from each stock is given in the following table: Gregory calculated the portfolio's beta as 0.910 and the portfolio's required return as 12.8250%. 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 Transfer Fuels 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? (Note: Do not round your intermediate calculations.) 1.3020 percentage points 0.8190 percentage points 1.0500 percentage points 1.2075 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 13.28% from the portfolio with the new weights. Does he think that the required return as compared to expected returns is undervalued, overvalued, or fairly valued? Overvalued Fairly valued Undervalued Suppose instead of replacing Atteric Inc.'s stock with Transfer Fuels 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