Consider the following information about Equities I and II:

The market risk premium is 8 per cent, and the risk-free rate is 4 per cent. Which equity has the most systematic risk? Which one has the most unsystematic risk? Which equity is riskier? Explain.

State of economy - Recessione Normale Irrational exuberance Probability of state of economy 0.25 0.50 e 0.25 Rate of return if state occurs Equityle Equity 11 0.11 -0.40 0.29 e 0.10 0.13 0.56