• 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%	2%
Normal Economy	30%	8%	4%
Boom	40%	20%	-3%

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 6.75%
2. ER 0.05% and SD 6.75%
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. 0.20%
3. 0.19%
4. 0.15%

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

1. 0.3
2. 1
3. -0.3
4. 0.46

18. If Ron constructs a portfolio by investing 40% of his wealth on stock S and 60% of his wealth on bond B, what is the expected return of this portfolio?

1. 10%
2. 7.2%
3. 9.8%
4. 7.96%

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

1. 6.75%
2. 5.46%
3. 9.49%
4. 6.31%

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

1. 78.6%
2. 68.5%
3. 55.7%
4. 35.7%