Analysts' estimates on expected returns from equity investments are based on several factors. These estimations also often include subjective andjudgmental factors, because different analysts interpret data in different waysSuppose, based on the earnings consensus of stock analysts, Gregory expects a return of 13.54% from the portfolio with the new weights. Does hethink that the required return as compared to expected returns is undervalued, overvalued, or fairly valued?O UndervaluedOvervaluedO Fairly valuedSuppose instead of replacing Atteric Inc.'s stock with Baque Co.'s stock, Gregory considers replacing Atteric Inc.'s stock with the equal dollar allocationto shares of Company X's stock that has a higher beta than Atteric Inc. If everything else remains constant, the required return from the portfoliowould increase Gregory is an analyst at a wealth management firm. One of his clients holds a $5,000 portfolio that consists of four stocks. The investment allocationin the portfolio along with the contribution of risk from each stock is given in the following table:StockAtteric Inc. (AI)Arthur Trust Inc. (AT)Lobster Supply Corp. (LSC)Baque Co. (BC)Investment Allocation35%20%O 0.2048 percentage pointsO 0.3255 percentage pointsO 0.2625 percentage pointsO 0.3019 percentage points15%30%Beta Standard Deviation.0.6001.5001.2000.50053.00%57.00%60.00%64.00%Gregory calculated the portfolio's beta as 0.840 and the portfolio's required return as 12.3000%.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 sameamount in additional shares of Baque 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: Donot round your intermediate calculations.)

An expected return is the quantum of financial gain or loss an investor expects from their…

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 13.54% 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? O Undervalued Overvalued O Fairly valued 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 X's stock that has a higher beta than Atteric Inc. If everything else remains constant, the required return from the portfolio would increase

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 13.54% 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? O Undervalued Overvalued O Fairly valued 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 X's stock that has a higher beta than Atteric Inc. If everything else remains constant, the required return from the portfolio would increase

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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12. Portfoliobeta and weights Musashi 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 in the portfolio along with the contribution of risk from each stock is given in the following table: Stock Atteric Inc. Arthur Inc. Li Corp. Baque Co. 0.91% Investment Allocation Beta 0.900 O 0.71% 35% 1.13% 20% 15% 30% Musashi calculated the portfolio's beta as 0.960 and the portfolio's expected return as 11.24%. 1.05% 1.500 1.300 0.500 Musashi 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 5.00%, and the market risk premium is 6.50%. Standard Deviation According to Musashi's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? 0.53% 0.57% 0.60% 0.64%
You buy a stock from the capital market. If the capital market is semi-strong efficient, which of the following statements is NOT correct? a. You cannot earn any abnormal returns above the required return by trading on public information. b. Past stock prices can be used to predict future stock prices. c. The technical analysis of publicly available information will not lead to any abnormal returns. d. The stock is fairly priced. e. Stock prices reflect all publicly available information.
If a stock's Beta is negative, that suggests that... (choose the single best response) Group of answer choices None of these is true. The stock's returns have been consistently negative recently. No investors would want to buy the stock. Its returns are negatively correlated with the market. The stock's CAPM expected return is negative.
Based on the CAPM, Jensen's Alpha of a firm a) equals zero if the firm's stock returns have underperformed as compared to the market after adjusting for its beta risk. b) is positive if the firm's stock returns have overperformed as compared to the market after adjusting for its beta risk. c) is negative if the firm's stock returns have overperformed as compared to the market after adjusting for its beta risk. d) equals one if the firm's stock returns have underperformed as compared to the market after adjusting for its beta risk.
No matter how the stock price fluctuates, as long as it can provide a positive return, the risk of investing in stocks is low.If the concept of standard deviation is applied, is this true or false?
Based on the CAPM model, a stock with a negative beta has which of the following characteristics? A. An expected return less than zero. B. An expected return equal to the risk-free rate. C. Since these are so rare, the CAPM model does not account for negative beta stocks. D. An expected return less than the risk-free rate.
Which of the following statement is true? (a) Correlation has no effect on the expected return of a portfolio. (b) As the correlation between two stocks increases, the volatility of the two-stock portfolio falls. (c) The correlation of a stock's return with itself is zero. (d) None of the above
Stock A has more systematic risk than stock B, stock B has more unsystematic risk than stock A, and it is unclear which stock (A or B) has more total risk. Both stock A and stock B have more systematic risk than the market. Which of the following assertions is most consistent with finance theory? Stock B would have a higher expected return than stock A and stock A would have a higher expected return than the market Stock A would have a higher expected return than stock B and stock A would have a higher expected return than the market Stock B would have a higher expected return than stock A and the market would have a higher expected return than stock A Stock A would have a higher expected return than stock B and the market would have a higher expected return than stock A Because it is unclear which stock (A or B) has more total risk, it is unclear which stock (A or B) would have a higher expected return

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