Consider the following information about Stock I and II. The market risk premium is 10 percent and the risk-free rate is 3 percent.

		Rate of Return
State of Economy	Probability	Stock I	Stock II
Recession	0.30	0.04	-0.15
Normal	0.60	0.15	0.06
Irrational exuberance	0.10	0.05	0.35

1) Which stock is riskier if it is to be held as part of a well-diversified portfolio?

2) If you invest 65% of your wealth in Stock I and the remaining in Stock II, what is the systematic risk of your portfolio?