1) Rafeal is an analyst at a wealth management firm. One of his clients holds a $5000 portfolio that consist of four stocks. The investment allocation in the portfolio along with the contribustion of risk from each stock is given in the following table:
stock Investment Beta Standard Deviation Atteric Inc (AI) 35% 0.600 38.00% Atteric Trust (AT) 20% 1.400 42.00% Lobster 15% 1.200 45.00% Baque Co 30% 0.500 49.00%
Rafeal calculated the portfolioâs beta as 0.820 and the portfolioâs expected return as 12.15%.
Rafeal thinks it will be a good idea to reallocate the funds in his clientâs portfolio. He recommends replacing Atteric Incâs share with the same amount in additional shares of Baque Co. The risk-free rate is 6%, and the market risk premium is 7.50%. According to Rafealâs recommendation, assuming that the market is in equilibrium, how much will the portfolioâs required return change? 0.26, 0.30, 0.20, or 0.32 ?
Suppose, based on the earnings consensus of stock analysts, Rafeal expects a return of 10.39% 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? Suppose instead of replacing Atteric Incâs Stock with Baque Coâs stock, Rafeal considers replacing Atteric Incâs stock with the equal dollar allocation to shares of company Xâs stock that has a higher beta than Atteric Inc. If everything else remains constant, the required return from the portfolio would (Increase or Decrease)
Rafeal is an analyst at a wealth management firm. One of his clients holds a $5000 portfolio that consist of four stocks. The investment allocation in the portfolio along with the contribustion of risk from each stock is given in the following table:
Stock
Investment
Beta
Standard deviation
Atteric Inc (AI)
35%
0.600
38.00%
Arthur Trust (AT)
20%
1.400
42.00%$
Lobster Supply Corp
15%
1.200
45.00%
Baque Co
30%
0.500
49.00%
Rafeal calculated the portfolioâs beta as 0.820 and the portfolioâs expected return as 12.15%.
Rafeal thinks it will be a good idea to reallocate the funds in his clientâs portfolio. He recommends replacing Atteric Incâs share with the same amount in additional shares of Baque Co. The risk-free rate is 6%, and the market risk premium is 7.50%
According to Rafealâs recommendation, assuming that the market is in equilibrium, how much will the portfolioâs required return change? 0.26, 0.30, 0.20, or 0.32 ?
Suppose, based on the earnings consensus of stock analysts, Rafeal expects a return of 10.39% 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?
Suppose instead of replacing Atteric Incâs Stock with Baque Coâs stock, Rafeal considers replacing Atteric Incâs stock with the equal dollar allocation to shares of company Xâs stock that has a higher beta than Atteric Inc. If everything else remains constant, the required return from the portfolio would? Increase or Decrease ?
2).
Wilson holds a portfolio that invest equally in three stocks (WA=WB=WC= 1/3). Each stock is described in the following table:
Stock
Beta
Standard deviation
Expected return
A
0.5
23%
7.5%
B
1.0
38%
12.0%
C
2.0
45%
14.0%
The risk-free [rRF] is 4% and the market risk premium [RPM] is 5%. Use the security market line (SML) to plot each stockâs beta and expected return on the graphy
A stock is in equilibrium if its expected return is ______ (is less than or is more than or equals ) its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stockâs prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst;s expected return estimates, Stock A is _________ (undervalued or in equilibrium or overvalued)?, Stock B is ___________(undervalued or in equilibrium or overvalued)?, and stock C is in equilibrium and fairly valued.
?
2). Wilson holds a portfolio that invest equally in three stocks (WA=WB=WC= 1/3). Each stock is described in the following table: Stock Beta Standard deviation Expected return A 0.5 23% 7.5% B 1.0 38% 12.0% C 2.0 45% 14.0% The risk-free [rRF] is 4% and the market risk premium [RPM] is 5%. Use the security market line (SML) to plot each stockâs beta and expected return on the graphy A stock is in equilibrium if its expected return is ______ (is less than or is more than or equals ) its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stockâs prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst;s expected return estimates, Stock A is _________ (undervalued or in equilibrium or overvalued)?, Stock B is ___________(undervalued or in equilibrium or overvalued)?, and stock C is in equilibrium and fairly valued.
1) Rafeal is an analyst at a wealth management firm. One of his clients holds a $5000 portfolio that consist of four stocks. The investment allocation in the portfolio along with the contribustion of risk from each stock is given in the following table:
| stock | Investment | Beta | Standard Deviation |
| Atteric Inc (AI) | 35% | 0.600 | 38.00% |
| Atteric Trust (AT) | 20% | 1.400 | 42.00% |
| Lobster | 15% | 1.200 | 45.00% |
| Baque Co | 30% | 0.500 | 49.00% |
Rafeal calculated the portfolioâs beta as 0.820 and the portfolioâs expected return as 12.15%.
Rafeal thinks it will be a good idea to reallocate the funds in his clientâs portfolio. He recommends replacing Atteric Incâs share with the same amount in additional shares of Baque Co. The risk-free rate is 6%, and the market risk premium is 7.50%. According to Rafealâs recommendation, assuming that the market is in equilibrium, how much will the portfolioâs required return change? 0.26, 0.30, 0.20, or 0.32 ?
Suppose, based on the earnings consensus of stock analysts, Rafeal expects a return of 10.39% 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? Suppose instead of replacing Atteric Incâs Stock with Baque Coâs stock, Rafeal considers replacing Atteric Incâs stock with the equal dollar allocation to shares of company Xâs stock that has a higher beta than Atteric Inc. If everything else remains constant, the required return from the portfolio would (Increase or Decrease)
Rafeal is an analyst at a wealth management firm. One of his clients holds a $5000 portfolio that consist of four stocks. The investment allocation in the portfolio along with the contribustion of risk from each stock is given in the following table:
| Stock | Investment | Beta | Standard deviation |
| Atteric Inc (AI) | 35% | 0.600 | 38.00% |
| Arthur Trust (AT) | 20% | 1.400 | 42.00%$ |
| Lobster Supply Corp | 15% | 1.200 | 45.00% |
| Baque Co | 30% | 0.500 | 49.00% |
Rafeal calculated the portfolioâs beta as 0.820 and the portfolioâs expected return as 12.15%.
Rafeal thinks it will be a good idea to reallocate the funds in his clientâs portfolio. He recommends replacing Atteric Incâs share with the same amount in additional shares of Baque Co. The risk-free rate is 6%, and the market risk premium is 7.50%
According to Rafealâs recommendation, assuming that the market is in equilibrium, how much will the portfolioâs required return change? 0.26, 0.30, 0.20, or 0.32 ?
Suppose, based on the earnings consensus of stock analysts, Rafeal expects a return of 10.39% 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?
Suppose instead of replacing Atteric Incâs Stock with Baque Coâs stock, Rafeal considers replacing Atteric Incâs stock with the equal dollar allocation to shares of company Xâs stock that has a higher beta than Atteric Inc. If everything else remains constant, the required return from the portfolio would? Increase or Decrease ?
2).
Wilson holds a portfolio that invest equally in three stocks (WA=WB=WC= 1/3). Each stock is described in the following table:
| Stock | Beta | Standard deviation | Expected return |
| A | 0.5 | 23% | 7.5% |
| B | 1.0 | 38% | 12.0% |
| C | 2.0 | 45% | 14.0% |
The risk-free [rRF] is 4% and the market risk premium [RPM] is 5%. Use the security market line (SML) to plot each stockâs beta and expected return on the graphy
A stock is in equilibrium if its expected return is ______ (is less than or is more than or equals ) its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stockâs prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst;s expected return estimates, Stock A is _________ (undervalued or in equilibrium or overvalued)?, Stock B is ___________(undervalued or in equilibrium or overvalued)?, and stock C is in equilibrium and fairly valued.
?
2). Wilson holds a portfolio that invest equally in three stocks (WA=WB=WC= 1/3). Each stock is described in the following table: Stock Beta Standard deviation Expected return A 0.5 23% 7.5% B 1.0 38% 12.0% C 2.0 45% 14.0% The risk-free [rRF] is 4% and the market risk premium [RPM] is 5%. Use the security market line (SML) to plot each stockâs beta and expected return on the graphy A stock is in equilibrium if its expected return is ______ (is less than or is more than or equals ) its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stockâs prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst;s expected return estimates, Stock A is _________ (undervalued or in equilibrium or overvalued)?, Stock B is ___________(undervalued or in equilibrium or overvalued)?, and stock C is in equilibrium and fairly valued.
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