Consider the following information about Stocks I and II: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Recession .30 .05 .30 Normal .45 .22 .10 Irrational exuberance .25 .05 .50 The market risk premium is 6 percent and the risk-free rate is 2 percent.

The standard deviation on Stock I's expected return is percent, and the Stock I beta is . The standard deviation on Stock II's expected return is percent, and the Stock II beta is . Therefore, based on the stock's systematic risk/beta, Stock is "riskier".