Answer: 28%

## Explanation ### Relationship between Stock's Sharpe Ratio and Market's Sharpe Ratio According to the Capital Asset Pricing Model (CAPM), the Sharpe ratio of a stock is related to the market's Sharpe ratio by: \[\text{Sharpe Ratio}_{\text{stock}} = \rho \times \text{Sharpe Ratio}_{\text{market}}\] Where: - \(\rho\) = correlation between the stock and the market portfolio - Sharpe Ratio is expressed as a decimal ### Given Data - Market portfolio's Sharpe ratio = 40% = 0.40 - Correlation (\(\rho\)) = 0.7 ### Calculation \[\text{Sharpe Ratio}_{\text{stock}} = 0.7 \times 0.40 = 0.28 = 28\%\] ### Result The stock's Sharpe ratio is **28%**. Therefore, the correct answer is **B. 28%**.

Author: LeetQuiz Editorial Team