1. Following table shows information of probable scenarios and associated retum of an equity "Y" (Note: You must have to show the calculation) State Probability of Reburn in state Escellent 25 a) Calculate expected return of the equity "Y". (5 points) b) Calculate standard deviation of the equity"Y(5 points) c) Consider a risk-free asset "X" of which the rate of return is 3%. Create a portfolio that consists of risky equity "Y" and risk-free asset "X" Calculate portfolio return and standard deviation for each of following set of allocation of investment budget Draw a capital allocation line with horizontal axis showing portfolio SD and vertical axis showing portfolio return. (5 points) d) Calculate and interpret the sharp ratio. (5 points) 2. Explain how each of the following situations would affect interest rate and consequently, the equity market. a) Sudden increase of capital expenditure by the businesses (S b) Decrease of household savings in the market (5 Points) c) Sudden increase of money supply in the market (S Points) 3. Do you agree that a high inflation is good for the equity Points) market? Why or why not? (S Points) 4. Why does a high standard deviation of a stock's rate of retunn mean that that stock is risky? Explain. (Hint: Intuitively explain how we calculate standard deviation and what does it mean) (5 points) 5. Answer the following question rela ted to CAPM beta. a) What does a stock's beta show? Explain. (3 points) b) Following table shows beta of individual three stocks Stock Beta Walmat6 Boeing 1.8 Interpret the beta of each company. During recession, which stock should be safer and why? (7 Points)