Keep the Highest: 1/3 12. Portfolio beta and weights Jake 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 35% Beta Atteric Inc. (AI) 0.600 Standard Deviation 0.53% 0.579 20% 1.400 Arthur Trust Inc(AT) Lobster Supply Corp. (LSC) Baque Co. (BC) 15% 1.100 0.60% 30% 0.400 0.64% Jake calculated the portfolio's beta as 0.775 and the portfolio's expected return as 8.26% Jake 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 Baque Co. The risk-free rate is 4.00%, and the market risk premium is 5.50%. According to Jake's recommendation, assuming that the market is in equilibrium, the portfolio's required return will change by 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, Jake expects a return of 7.89% 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? Chapter 8 Assignment 20% 1.400 0.57% Arthur Trust Inc(AT) Lobster Supply Corp. (LSC) Baque Co. (BC) 15% 1.100 0.60% 30% 0.400 0.64% Jake calculated the portfolio's beta as 0.775 and the portfolio's expected return as 8.26%. Jake 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 Baque Co. The risk-free rate is 4.00%, and the market risk premium is 5.50%. According to Jake's recommendation, assuming that the market is in equilibrium, the portfolio's required return will change by ective and Analysts' estimates on expected returns from equity investments are based on several factors. These estimations also often ing 0.45% judgmental factors, because different analysts interpret data in different ways. 0.28% 0.41% pes he think Suppose, based on the earnings consensus of stock analysts, Jake expects a return of 7.89% from the portfolio with the new w that the revised portfolio, based on the changes he recommended, is undervalued, overvalued, or fairly valued? 0.36% O Undervalued O Overvalued O Fairly valued Suppose instead of replacing Atteric Inc.'s stock with Baque Co.'s stock, Jake 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 required return from the portfolio would Grade It Now Save & Continue 20% 1.400 0.57% Arthur Trust Inc(AT) Lobster Supply Corp. (LSC) Baque Co. (BC) 15% 1.100 0.400 0.60% 30% 0.64% Jake calculated the portfolio's beta as 0.775 and the portfolio's expected return as 8.26%. Jake 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 Baque Co. The risk-free rate is 4.00%, and the market risk premium is 5.50%. According to Jake's recommendation, assuming that the market is in equilibrium, the portfolio's required return will change by 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, Jake expects a return of 7.89% 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? O Undervalued Overvalued O Fairly valued increase decrease tead of replacing Atteric Inc.'s stock with Baque Co.'s stock, Jake considers replacing Atteric Inc.'s stock with the equal dollar allocation to mpany X's stock that has a higher beta than Atteric Inc. If everything else remains constant, the required return from the portfolio would