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Consider the following information on Stocks I and II: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock I

Consider the following information on Stocks I and II: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock I Stock II Recession .30 .05 .18 Normal .40 .19 .14 Irrational exuberance .30 .13 .29 The market risk premium is 8 percent and the risk-free rate is 5 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is riskier? Explain.

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