4 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 inthe portfolio along with the contribution of risk from each stock is given in the following table:StockAtteric Inc. (AI)Arthur Trust Inc. (AT)Li Corp. (LC)Transfer Fuels Co. (TF)Investment Allocation35%20%15%30%BetaO 0.9009 percentage pointsO 1.3283 percentage pointsO 1.4322 percentage pointsO 1.1550 percentage points0.9001.4001.1000.300Standard Deviation23.00%27.00%30.00%34.00%Rafael calculated the portfolio's beta as 0.850 and the portfolio's required return as 8.6750%.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 amountin additional shares of Transfer Fuels Co. The risk-free rate is 4%, and the market risk premium is 5.50%.According to Rafael's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? (Note: Donot round your intermediate calculations.)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 ways.Suppose, based on the earnings consensus of stock analysts, Rafael expects a return of 6.02% from the portfolio with the new weights. Does he thinkthat the required return as compared to expected returns is undervalued, overvalued, or fairly valued? Rafael calculated the portfolio's beta as 0.850 and the portfolio's required return as 8.6750%.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 amountin additional shares of Transfer Fuels Co. The risk-free rate is 4%, and the market risk premium is 5.50%.According to Rafael's recommendation, assuming that the market is in equilibrium, how much will the portfolio's required return change? (Note: Donot round your intermediate calculations.)O 0.9009 percentage pointsO 1.3283 percentage pointsO 1.4322 percentage pointsO 1.1550 percentage pointsAnalysts' 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 ways.Suppose, based on the earnings consensus of stock analysts, Rafael expects a return of 6.02% from the portfolio with the new weights. Does he thinkthat the required return as compared to expected returns is undervalued, overvalued, or fairly valued?O UndervaluedO OvervaluedO Fairly valuedSuppose instead of replacing Atteric Inc.'s stock with Transfer Fuels Co.'s stock, Rafael considers replacing Atteric Inc.'s stock with the equal dollarallocation 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

Portfolio Beta: A portfolio beta is a means employed in corporate finance employed by the parties…

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: Stock Atteric Inc. (AI) Arthur Trust Inc. (AT) Li Corp. (LC) Transfer Fuels Co. (TF) Investment Allocation 35% 20% 15% 30% O 0.9009 percentage points O 1.3283 percentage points O 1.4322 percentage points O 1.1550 percentage points Beta 0.900 1.400 1.100 0.300 Standard Deviation 23.00% 27.00% 30.00% 34.00% Rafael calculated the portfolio's beta as 0.850 and the portfolio's required return as 8.6750%. 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 Transfer Fuels Co. The risk-free rate is 4%, and the market risk premium is 5.50%. According to Rafael'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. Suppose, based on the earnings consensus of stock analysts, Rafael expects a return of 6.02% from the portfolio with the new weights. Does he think

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