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1. Following table shows information on probable scenarios and associated return of an equity Y (Note: You must have to show the calculation) StateProbability of
1. Following table shows information on probable scenarios and associated return of an equity "Y" (Note: You must have to show the calculation) StateProbability of Return in state Excellent Good Poor Worse Crash State 0.25 0.35 0.25 0.10 0.05 0.22 0.12 0.03 0.02 0.10 a) Calculate the expected return of the equity "Y". b) Calculate the standard deviation of the equity "Y". c) Consider a risk-free asset "X" of which the rate of return is 5%. Create a portfolio that consists of the risky equity "Y" and the risk-free asset "X". Calculate portfolio return and standard deviation for each of following set of allocation of investment budget. Allocation in equity Allocation in risk-free asset Portfolio returnPortfolio SD 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 Draw a capital allocation line with horizontal axis showing portfolio SD and the vertical axis showing portfolio return. d) Calculate and interpret the Sharpe ratio
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