Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

This is all the information provided. No missing info!!!! The last par, the blank space ask for Increasing or decreasing 6. Portfolio beta and

This is all the information provided. No missing info!!!!

The last par, the blank space ask for "Increasing " or "decreasing"

image text in transcribed

6. Portfolio beta and weights Brandon is an analyst at a wealth management firm. 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 Standard Deviation 23.00% 27.00% 30.00% 34.00% Stock Atteric Inc. (AI) Arthur Trust Inc. (AT) Lobster Supply Corp. (LSC) Baque Co. (BC) Allocation 35% 20% 15% 30% Beta 0.900 1.500 1.100 0.400 Brandon calculated the portfolio's beta as 0.900 and the portfolio's expected return as 8.95% Brandon 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 4%, and the market risk premium is 5.50%. According to Brandon's required return change? ation, assuming that the market is in equilibrium, how much will the portfolio's O 0.96 O 0.75 percentage points O 1.19 percentage points O 1.10 percentage points 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 eamings consensus of stock analysts, Brandon expects a return of 6.49% 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? Undervalued Fairly valued O Overvalued Suppose instead of replacing Atteric Inc.'s stock with Baque Co.'s stock, Brandon 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 portfolio's risk would

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Bank Analysts Handbook Money Risk And Conjuring Tricks

Authors: Stephen M. Frost

1st Edition

0470091185, 978-0470091180

More Books

Students also viewed these Finance questions

Question

3. Express feelings most freely, frankly, openly?

Answered: 1 week ago