Brandon is an analyst at a wealth management firm. One of his clients holds in the portfolio along with the contribution of risk from each stock is given in the following table: Stock Atteric Inc. (AI) Arthur Trust Inc. (AT) Li Corp. (LC) Transfer Fuels Co. (TF) Investment Allocation 35% 20% 15% 30% Beta 0.750 1.600 1.100 0.300 O 0.6778 percentage points O 0.8690 percentage points O 0.9994 percentage points O 1.0776 percentage points Standard Deviation 38.00% 42.00% 45.00% 49.00% Brandon calculated the portfolio's beta as 0.838 and the portfolio's required return as 8.6090%. 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 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? (Note: Do not round your intermediate calculations.) 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.
Brandon is an analyst at a wealth management firm. One of his clients holds in the portfolio along with the contribution of risk from each stock is given in the following table: Stock Atteric Inc. (AI) Arthur Trust Inc. (AT) Li Corp. (LC) Transfer Fuels Co. (TF) Investment Allocation 35% 20% 15% 30% Beta 0.750 1.600 1.100 0.300 O 0.6778 percentage points O 0.8690 percentage points O 0.9994 percentage points O 1.0776 percentage points Standard Deviation 38.00% 42.00% 45.00% 49.00% Brandon calculated the portfolio's beta as 0.838 and the portfolio's required return as 8.6090%. 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 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? (Note: Do not round your intermediate calculations.) 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.
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
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