Please type the answer with the formula, do not do it in excel. Thanks.

Problem 3 (25 marks): Consider the following information about stocks I and II: Rate of return if state occurs State of economy Probability of state of economy Stock I Stock II Recession 0.15 -0.02 -0.20 Normal 0.55 0.08 0.10 Boom 0.30 0.22 0.25 The market risk premium is 8 percent, and the risk-free rate is 2 percent. a) Which stock has more systematic risk? Which stock has more total risk? Assume both stock are correctly priced. Show your work. (20 marks) b) Compute the variance of a portfolio that is 40% invested in stock I and 60% invested in stock