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Brandon is an analyst at a wealth management firm. One of his clients holds a $7,500...

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:
Stock
Investment Allocation
Beta
Standard Deviation
Atteric Inc. (AI)
35%
0.750
23.00%
Arthur Trust Inc. (AT)
20%
1.600
27.00%
Li Corp. (LC)
15%
1.100
30.00%
Transfer Fuels Co. (TF)
30%
0.300
34.00%
Brandon calculated the portfolio’s beta as 0.8375 and the portfolio’s expected return as 12.28%.
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 6%, and the market risk premium is 7.50%.
According to Brandon’s recommendation, assuming that the market is in equilibrium, how much will the portfolio’s required return change? (Note: Round your intermediate calculations to two decimal places.)
0.92 percentage points
1.36 percentage points
1.46 percentage points
1.18 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 12.60% 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?
Undervalued
Overvalued
Fairly valued

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 beta would ____, and the required return from the portfolio would _____
Last two options are increase/decrease
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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASEke - Microsoft Excel (Product Activation Failed) Add-Ins Formulas Data Review View - 2x 11 A = = = V General A A Wrap Text FM

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