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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

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 .25 .020 .20 Normal .60 .320 .12 Irrational exuberance .15 .180 .40 The market risk premium is 11 percent, and the risk-free rate is 4 percent. Calculate the beta and standard deviation of Stock I. Calculate the beta and standard deviation of Stock II. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is riskier?

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