Question 34 (3 marks) Consider the following information about Stocks A and B. The market risk premium is 7%, and the risk-free rate is 3%. State of economy Rate of Return if State Occurs Probability of state of economy Recession 0.15 Normal 0.70 Irrational exuberance 0.15 Which of the two stocks has higher systematic risk? Stock A 0.02 Stock B -0.25 0.21 0.09 0.06 0.44 a. Stock B because the variance on its return is much wider than that of Stock A b. Stock A because its beta is higher than that of Stock B c. Stock A because its returns are negatively related to the market portfolio returns d. Stocks A and B have the same system risk because their betas are all positive. Oa. O b. Oc Od