You expect Wesfarmers (WES) to have a beta of 1.5 over the next year and the beta of Qantas (QAN) to be 1.9 over the next year. Also, you expect the volatility of WES to be 50% and that of QAN to be 35% over the next year. Which company has more systematic risk? Which company has more total risk?

Question

Quizplus · Accepted Answer

Qantas (QAN) has more systematic risk as it has a higher beta of 1.9 compared to Wesfarmers' (WES) beta of 1.5. Systematic risk is measured by beta, which captures the sensitivity of a stock's returns to the overall market returns. QAN also has more total risk as it has a higher volatility of 35% compared to WES's volatility of 50%. Total risk is measured by volatility, which captures the dispersion of a stock's returns around its expected value. Therefore, option D is the correct answer.

You Expect Wesfarmers (WES) to Have a Beta of 1