State of Economy Recession 5 Normal Irrational exuberance Probability of State of Economy Rate of Return If State Occurs Stock I Stock II 15 .03 -.23 .70 .20 .09 15 .08 .43 es The market risk premium is 7 percent, and the risk-free rate is 3.5 percent. (Round your answers to 2 decimal places, e.g., 32.16.) The standard deviation on Stock I's return is deviation on Stock Il's return is stock's systematic risk/beta, Stock percent, and the Stock I beta is The standard percent, and the Stock II beta is Therefore, based on the is riskier.