asking for help on problem 30, systemic vs unsystematic risk

Risk and Return PART 6 29. SML Suppose you observe the following situation: Return if State Occurs LO 4 Probability of State Stock A Stock B State of Economy .08 -10 15 .11 Bust 09 .60 30 Normal 27 25 Boom b. Assuming the capital asset pricing model holds and Stock A's beta is greater than Stock B's beta by.30, what is the expected market risk premium? 30. Systematic versus Unsystematic Risk Consider the following information Calculate the expected return on each stock. a. LO 3 on Stocks I and I: Rate of Return if State Occurs Probability of State of Economy State of Stock I Stock Economy 04 -22 25 Recession .22 Normal 60 .15 .16 .15 Irrational exuberance 45 The market risk premium is 7 percent, and the risk-free rate is 4 percent. Which stock has more systematic risk? Which one has more unsystematic risk? Which stock is "riskier"? Explain. .1 Expected Return You want to find the expected return for Honeywell using the CAPM. irst, you need the market risk premium. Use the average large-company stock return in able 10.3 to estimate the market risk premium. Next, go to money.cnn.com and find the urrent interest rate for three-month Treasury bills. Finally, go to finance.yahoo.com, enter e ticker symbol HON, and find the beta for Honeywell. What is the expected return for oneywell using CAPM? What assumptions have you made to arrive at this number? 2 Portfolio Beta You have decided to invest in an equally weighted portfolio consisting American Express, Procter &Gamble, Home Depot, and DuPont and need to find the eta of your portfolio. Go to finance.yahoo.com and find the ticker symbols for each of ese companies. Next, find the beta for each company. What is the beta for your portfolio? 3 Beta Which stocks have the highest and lowest betas? Go to finance.yahoo.com nd locate the Stock Screener. Enter 0 as the mavim I have a