Consider the following information on Stocks I and II:

State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Recession .22 .055 .27 Normal .67 .355 .19 Irrational exuberance .11 .215 .47

The market risk premium is 11.7 percent, and the risk-free rate is 4.7 percent.

Requirement 1: (a) Calculate the beta and standard deviation of Stock I. (Do not round intermediate calculations. Enter the standard deviation as a percentage. Round your answers to 2 decimal places (e.g., 32.16).)

Stock I Beta

Standard deviation

%

(b) Calculate the beta and standard deviation of Stock II. (Do not round intermediate calculations. Enter the standard deviation as a percentage. Round your answers to 2 decimal places (e.g., 32.16).)

Stock II Beta

Standard deviation

%

Requirement 2: (a) Which stock has the most systematic risk?

(Click to select)Stock IStock II

(b) Which one has the most unsystematic risk?

(Click to select)Stock IIStock I

(c) Which stock is riskier?