Consider the following situation:

State of Economy	Probability of State of Economy	Returns if State Occurs
		Stock A	Stock B
Boom	40%	30%	20%
Average	40%	10%	10%
Recession	20%	-30%	10%

The expected return on the market portfolio is 10% and the US Treasury bill yields 2%. The capital market is currently in equilibrium.

1. (5 points) Which stock has the most systematic risk? Provide all the steps and equations.
2. (5 points) Which stock has the most unsystematic risk? Explain why. Provide all the steps and equations.
3. (10 points) What is the standard deviation of a portfolio which is comprised of $8,400 invested in stock A and $3,600 in stock B?