• On December 2018, Tom, Rons son graduated with a degree in finance. Tom offered his father to help him with portfolio management. After a lot of research, Tom presented his father with the following information about two security portfolios, a stock and a bond portfolio.

State of the economy	Probability	Stock S	Bond B
Depression	10%	-10%	-1%
Recession	20%	3%	9%
Normal Economy	30%	12%	7%
Boom	40%	20%	5%

14. what is the expected return ER, and standard deviation SD, of stock S?

1. ER 6.25% and SD 9.46
2. ER 11.2% and SD 9.46%
3. ER 11.2% and SD 8.95%
4. ER 6.25% and SD 8.95%

15. what is the expected return and SD of Bond B?

1. ER 5.8% and SD 2.71%
2. ER 0.05% and SD 2.71%
3. ER 0.05% and SD 0.45%
4. ER 5.8% and SD 0.45%

16. What is the covariance between Stock S and Bond B?

1. 0.25%
2. 0.10%
3. 0.19%
4. 0.07%

17. what is the correlation coefficient between Stock S and Bond B?

1. 0.324
2. 0.259
3. -0.341
4. 0.078

18. If Ron constructs a portfolio by investing 50% of his wealth on stock S and 50% of his wealth on bond B, what is the expected return of this portfolio?

1. 10%
2. 8.5%
3. 9.8%
4. 11.2%

19. What is the standard deviation of Rons proposed portfolio?

1. 0.28%
2. 5.46%
3. 5.25%
4. 6.31%

20. If risk free rate of return is 3%, what is Sharpe ratio of Toms proposed portfolio?

1. 133.82%
2. 142.89%
3. 104.79%
4. 100.51%