A client of ZBX Financial Planning is considering a shift in her portfolio holdings. Given recent stock market declines she is considering a weight of 75% in QQQ (a Nasdaq index) and the remainder in AGG (a corp bond index). Currently the beta of QQQ is 2.0 and the beta of AGG is 0.6, the overall market index has an expected return of 12%, and the risk-free rate is 4%. (i) What will be the E(R) of the client's portfolio according to the CAPM? (ii) Above we used the CAPM to estimate an expected return of a portfolio. How can the CAPM be useful for the estimation of an investment's NPV?

A client of ZBX Financial Planning is considering a shift in her portfolio holdings. Given recent stock market declines she is considering a weight of 75% in QQQ (a Nasdaq index) and the remainder in AGG (a corp bond index). Currently the beta of QQQ is 2.0 and the beta of AGG is 0.6, the overall market index has an expected return of 12%, and the risk-free rate is 4%. (i) What will be the E(R) of the client's portfolio according to the CAPM? (ii) Above we used the CAPM to estimate an expected return of a portfolio. How can the CAPM be useful for the estimation of an investment's NPV?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 25P

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