Brandon 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: Investment Standard Stock Allocation Deviation Beta Atteric Inc. (AI) 38.00% 35% 0.900 Arthur Trust Inc. (AT) 20% 1.400 42.00% 15% Li Corp. (LC) 1.200 45.00% Transfer Fuels Co. (TF) 0.400 30% 49.00% Brandon calculated the portfolio's beta as 0.895 and the portfolio's expected return as 8.92% Brandon thinks it will be a good idea to reallocate the funds in 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 4%, and the market risk premium is 5.50%. According to Brandon's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? O 1.10 percentage points O 0.75 percentage points O 0.96 percentage points O 1.19 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, Brandon expects a return of 6.46% from the portfolio According to Brandon's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? 1.10 percentage points 0.75 percentage points 0.96 percentage points 1.19 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, Brandon expects a return of 6.46% 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? Fairly valued Overvalued Undervalued Suppose instead of replacing Atteric Inc.'s stock with Transfer Fuels 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

Brandon 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: Investment Standard Stock Allocation Deviation Beta Atteric Inc. (AI) 38.00% 35% 0.900 Arthur Trust Inc. (AT) 20% 1.400 42.00% 15% Li Corp. (LC) 1.200 45.00% Transfer Fuels Co. (TF) 0.400 30% 49.00% Brandon calculated the portfolio's beta as 0.895 and the portfolio's expected return as 8.92% Brandon thinks it will be a good idea to reallocate the funds in 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 4%, and the market risk premium is 5.50%. According to Brandon's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? O 1.10 percentage points O 0.75 percentage points O 0.96 percentage points O 1.19 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, Brandon expects a return of 6.46% from the portfolio According to Brandon's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? 1.10 percentage points 0.75 percentage points 0.96 percentage points 1.19 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, Brandon expects a return of 6.46% 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? Fairly valued Overvalued Undervalued Suppose instead of replacing Atteric Inc.'s stock with Transfer Fuels 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

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter14: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 7LTAI

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