Systematic versus Unsystematic Risk $($LO$3)$ Consider the following information about Stocks I and II:

$\backslash$table$[[,$Rate of Return if State Occurs,,$],[$State of Economy,Probability of State of Economy,Stock I,Stock II$],[$Recession$,\mathrm{.}15,\mathrm{.}02,-\mathrm{.}25],[$Normal$,\mathrm{.}70,\mathrm{.}21,\mathrm{.}09],[$Irrational$,\mathrm{.}15,\mathrm{.}06,\mathrm{.}44],[$exuberance$,,,]]$

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

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