Problem 13-26 Systematic versus Unsystematic Risk [LO3]

Consider the following information about Stocks I and II:

				Rate of Return if State Occurs
State of	Probability of
Economy	State of Economy			Stock A			Stock B
Recession		0.25			0.06			-0.29
Normal		0.45			0.21			0.09
Irrational exuberance		0.30			0.15			0.49

The market risk premium is 8 percent, and the risk-free rate is 4 percent. (Round your answers to 2 decimal places. (e.g., 32.16))

The standard deviation on Stock I's expected return is percent, and the Stock I beta is . The standard deviation on Stock II's expected return is percent, and the Stock II beta is . Therefore, based on the stock's systematic risk/beta, Stock (Click to select)III is "riskier".