The market risk premium is 8 percent and the risk-free rate is 5 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is “riskier”? Explain.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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The market risk premium is 8 percent and the risk-free rate is 5 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is “riskier”? Explain.

Rate of
Return if
State
Occurs
Probability
State of
Stock Stock
of State of
Economy
II
Economy
Recession
.30
.05
-.18
Normal
.40
.19
.14
Irrational
.30
.13
.29
exuberance
Transcribed Image Text:Rate of Return if State Occurs Probability State of Stock Stock of State of Economy II Economy Recession .30 .05 -.18 Normal .40 .19 .14 Irrational .30 .13 .29 exuberance
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