WILL THUMBS UP

Rafael is an analyst at a wealth management firm. One of his clients holds a $10,000 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 53.00% 57.00% 60.00% 64.00% Stock Atteric Inc. (AI) Arthur Trust Inc. (AT) Li Corp. (LC) Baque Co. (BC) Allocation 3596 2096 15% 30% Beta 0.600 1.400 1.200 0.400 Rafael calculated the portfolio's beta as 0.790 and the portfolio's expected return as 8.35%. 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 Baque Co. The risk-free rate is 4%, and the market risk premium is 5.50%. ation, assuming that the market is in equilibrium, how much will the portfolio's According to Rafael's required return change? O 0.30 percentage points O 0.48 percentage points O 0.39 O 0.45 percentage points percentage points Analysts' estimates on expected returns from equity investments are based on several factors. These estimations also often indlude subjective and judgmental factors, because different analysts interpret data in different ways. Suppose, based on the eamings consensus of stock analysts, Rafael expects a return of 9.46% 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? O Overvalued Undervalued Fairly valued Suppose instead of replacing Atteric Inc.'s stock with Baque Co.'s stock, Rafael 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 beta would