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 I			Stock II
Recession		.30			.08			.27
Normal		.45			.19			.14
Irrational exuberance		.25			.13			.47

The market risk premium is 8 percent, and the risk-free rate is 6 percent. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16. Enter your return answers as a percent. )

The standard deviation on Stock I's return is _____ percent, and the Stock I beta is 1.025. The standard deviation on Stock II's return is _______ percent, and the Stock II beta is ______. Therefore, based on the stock's systematic risk/beta, Stock I is "riskier".