Explanation:

The relationship between a stock's Sharpe ratio and the market's Sharpe ratio is given by:

$\text{Stock Sharpe Ratio} = \rho \times \text{Market Sharpe Ratio}$

Where:

• ρ = correlation between the stock and market portfolio
• Market Sharpe Ratio = 40% = 0.40
• ρ = 0.7

$\text{Stock Sharpe Ratio} = 0.7 \times 0.40 = 0.28 = 28\%$

Therefore, the stock's Sharpe ratio is 28% (Option B).