Systematic versus Unsystematic Risk Consider the following information about I and II:

Rate of Return if State Occurs State of Economy Probability of State of Economy I II Recession 0.15 0.09 −0.30 Normal 0.70 0.42 0.12 Irrational exuberance 0.15 0.26 0.44 The market risk premium is 10 per cent, and the risk-free rate is 4 per cent. Which security has the most systematic risk? Which one has the most unsystematic risk? Which stock is ‘riskier’? Explain.