Which one has the most unsystematic risk

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Reference no: EM13914795

Consider the following information about Stock I and II

State of Economy Probability of State of Economy Rate of Returns If State Occurs

Stock I Stock II

Recession 0.25 0.02 -0.25

Normal 0.50 0.21 0.90

Irrational exuberance 0.25 0.06 0.44

The market risk premium is 7 percent, and the risk-free rate is 4 percent.

(a) Which stock has the most systematic risk?

(b) Which one has the most unsystematic risk?

Reference no: EM13914795

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