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Ch 08: Assignment - Risk and Rates of Return Search this course 6. Portfolio beta and weights Rafael is an analyst at a wealth management firm. One of his dients holds a $10,000 portfolio that consists of four stocks. The investment location in the portfolio along with the contribution of risk from each stock is given in the following table: Stock Standard Deviation Atteric Inc. (AT) Investment Allocation 35% 20% Beta 0.750 1.500 57.00 Arthur Trust Inc(AT) Lobster Supply Corp. (LSC) Baque Co. (BC) 15% 30% 1.300 0.500 Rafael calculated the portfolio's beta as 0.908 and the portfolio's expected return as 8.999 Rafael thinks it will be a good idea to reallocate the funds in his client's portfolio. He recommends replacing Atteric Inc. 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% According to Rafael's recommendation, assuming that the market is in equilibrium, how much will the portfollo's required return change O 0.48 percentage points 0.60 percentage points 0.37 percentage points 0.55 percentage points Analysts' estimates on expected returns from equity investments are based on several factors. These estimations also often indude subjective and bidamental factors, because different analysts interpret data in different ways. tfolio oth the new welghts. Does he think

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ke - Microsoft Excel (Product Activation Failed) Add-Ins Formulas Data Review View - 2x 11 A = = = V General A A Wrap Text Merge & Center - $ % , :.: Σ AutoSum : A Fill Sort & Clear Filter Editing File Home Insert Page Layout % Cut Calibri Ea Copy Paste Format Painter BIU - D Clipboard Font AA114 foc Y Z 113 Formatting as Table Styles Styles Find & Select Alignment Number Cells AA AB AC AD AE AF AG 114 115 BETA 116 ARTHUR TRUST ALLOCATION 20% 15% 65% LOBSTER BAQUE WEIGHTED BETA 1.5 0.3 1.3 0.195 0.5 0.325 0.820 PORTFOLIO BETA 117 118 119 120 121 122 123 124 REQUIRED RETURN ON NEW PORTFOLIO = Rf + beta(Rm-Rf) REQUIRED RETURN ON NEW PORTFOLIO = 4% +0.810*(5.5%) = 8.51% CHANGE IN REQUIRED RETURN = 8.99% - 8.51% = 0.48% 125 OVER VALUED EXPECTED RETURN (7.01%) <REQUIRED RETURN (8.51%) 126 127 128 IF STOCK HAS HIGHER BETA THAN ATTRIC INC 129 THEN PORTFOLIO BETA WILL INCREASE K 130 M Rea convexity DGM betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean YIELD bond portfolio KE CAPM UTILITY, SHARPE, beta ferences: AG470 cap stru WACC BOI 130% RESI el 20- ...Bag Ka 40 ENG 22-11-2019