LO $3$

$30.$ Systematic versus Unsystematic Risk

Consider the following information on Stocks I and II:

$\backslash$table$[[$State of$,\backslash$table$[[$Probability of State$],[$of Economy$]],$Rate of Return if State Occurs$],[$Economy$,\mathrm{.}25,$Stock I,Stock II$],[$Recession$,\mathrm{.}60,\mathrm{.}04,-\mathrm{.}22],[$Normal$,\mathrm{.}15,\mathrm{.}22,\mathrm{.}15],[$Irrational exuberance,,$\mathrm{.}16,\mathrm{.}45]]$

The market risk premium is $7$ percent, and the risk$-$free rate is $4$ percent. Which stock has more systematic risk? Which one has more unsystematic risk? Which stock is "riskier"? Explain.