30. Systematic versus Unsystematic Risk Consider on Stocks I and II: State of Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Economy Recession -.22 .25 .04 Normal .15 .22 .60 Irrational exuberance .15 .16 .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.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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b. Assuming the capital asset
than Stock B's beta by .30, what is the expected market risk
30. Systematic versus Unsystematic Risk Consider the following information
LO 3
on Stocks I and II:
State of
Economy
Probability of State
of Economy
Rate of Return if State Occurs
Stock I
Stock II
Recession
-.22
.04
.25
Normal
.15
.60
.22
Irrational exuberance
.15
.16
.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.
Transcribed Image Text:b. Assuming the capital asset than Stock B's beta by .30, what is the expected market risk 30. Systematic versus Unsystematic Risk Consider the following information LO 3 on Stocks I and II: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Recession -.22 .04 .25 Normal .15 .60 .22 Irrational exuberance .15 .16 .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.
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